Largo Resources Ltd Conference Call to Discuss Maracas Menchen Mine's Production And Operational Updates

Oct 16, 2014 AM EDT
LGO.TO - Largo Resources Ltd
Largo Resources Ltd Conference Call to Discuss Maracas Menchen Mine's Production And Operational Updates
Oct 16, 2014 / 02:30PM GMT 

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Corporate Participants
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   *  Darcie Ladd
      Largo Resources Ltd. - Manager of Corp. Development
   *  Mark Brennan
      Largo Resources Ltd. - President, CEO & Director

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Conference Call Participants
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   *  Cliff Hale-Sanders
      Cormark Securities - Analyst
   *  Ryan Olson
      - Private Investor
   *  Jim Young
      West Family Investments - Analyst
   *  Mike Barrow
      - Private Investor

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Presentation
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Operator   [1]
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 Good morning, ladies and gentlemen, and welcome to Largo Resources investor and analyst conference call. (Operator Instructions). I would now like to turn the call over to Darcie Ladd who is in charge of corporate development for Largo. Please go ahead.

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 Darcie Ladd,  Largo Resources Ltd. - Manager of Corp. Development   [2]
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 Good morning, everyone. We would like to firstly thank you all for taking the time to call in this morning. I will shortly hand the call over to Mark Brennan, President and Chief Executive Officer, who will provide an update on operations at the Maracas Menchen mine and a general corporate update.

 A question-and-answer period will follow and instructions will be provided for participants to submit their questions. We would like to encourage you all to join in the discussion and ask any questions you may have at that time. Please be patient as we try to address as many questions as possible.

 At this time I would like to remind you all that this call is being recorded and will be available for replay following the call. Now if you will please bear with me while I run through the legal disclaimers.

 Largo Resources would like to indicate that some discussion topics on this call may contain forward-looking information based on the Company's current expectations, estimates and beliefs. This forward-looking information is subject to a number of risks, uncertainties and other factors. Actual results could differ materially from forecasts or projections which may be contained in the forward-looking information.

 Certain material factors or assumptions may have been applied in making any forecasts or projections which may be contained in the forward-looking information.

 Additional information about the material factors that could cause actual results to differ materially from a forecast or projection contained in forward-looking information and the material factors or assumptions that were applied in making in making such forecasts or projections contained in any forward-looking information are subject to the risks and assumptions contained in the Company's most recent financial statements, MD&A and other information filed in respect to the Company on SEDAR.

 Callers should refer to those documents available on SEDAR for the purposes of any material information on the Company and the Company does not undertake to correct any information discussed during the call. I would now like to hand the call over to Mr. Mark Brennan, President and Chief Executive Officer.

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 Mark Brennan,  Largo Resources Ltd. - President, CEO & Director   [3]
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 Thank you, Darcie. Good morning, ladies and gentlemen, and thank you. I would like to take this opportunity to thank all our stakeholders and supporters who have been patient and have given us strong support over this period when we have been building the Maracas mine.

 Obviously we are looking now at a very difficult market environment, we are seeing more tumultuousness than we've seen in the last four years and things are looking a little shaky, largely as a consequence of the thought of deflation in the global economy.

 That said, one of the reasons for this call is I wanted to provide an update to shareholders and stakeholders as to what is happening at Largo. We see a very different picture taking place internally than what is happening externally. We wanted to provide confidence to the market that our operations are moving very, very well and the ramp-up is now moving to stable operations and from here we should see some very, very aggressive growth.

 With respect to the operations, I would like to just run through the genesis of the operations and give you just a very quick summary of how we have operated in the last couple years since our initial funding as of June, 2012.

 We started the civil construction in June 2012, completed that in February 2014. Aside from minor productivity issues it seemed to go very well. We had more difficulties in the electromechanical entering process which we began in April 2014 -- sorry, which we completed in April 2014.

 In this instance we had a lot of issues with respect to productivity. That said we came in over budget by 2.5% in US dollars which we were quite pleased with. This was irrespective of delivery delays of five months of critical items to the kiln that delayed the process.

 In May 2014, late May 2014, we started the commissioning of the mine, that took about a month and went without any problems. Where we started to encounter difficulties was when we started our first production in 2014. And what we found is we had a number of systems that we had commissioned and that had operated effectively when you did the commissioning.

 When one does a commissioning process one simply turns on the equipment and run the equipment but there is no feed running through the operations. When we started our first production process in the ramp-up in June -- I guess July, early July 2014, we actually started feeding material into the equipment. And in this instance we had a number of issues that the team had to rectify.

 For most of the eight systems that we have we actually had -- we had actually commissioned or hired separate groups, many of which were the leading experts in their field, to help us with each system. And to be very candid with you, we found upon the material coming into the system we weren't getting the performance that we had expected to be delivered to us.

 That said, we begin our first production in August 2014. We had our first sale in September 2014. And the reason -- the major reason for this call is to really come out and to reassure our stakeholders that we are now running with stable operations and we are now looking for rapid ramp-up. The next steps will be to optimize the efficiencies, increase availabilities and increase recoveries.

 What we are looking at is our expectation is to be at our Phase 1 maximum capacity by the end of 12 months which should put us sometime in July 2015. Our expectation is that we should be able to beat that ramp up.

 The team are working extremely hard and doing a fantastic job. This has been a very, very challenging timeframe for the management team and particularly for the technical team, many of whom have been working very, very long hours, missing their families. We have -- some of our contingents have been working 16 hour days and in three or four months have encountered 1,000 hours of overtime.

 And so, I would just tell you that you have -- the management team and particularly the technical team have really been working very, very hard on behalf of the shareholders and the stakeholders.

 With respect to our operations, if you look at the chart in our presentation that talks about our ramp-up process, I would say that today we are probably marginally behind the process of where we expected to be. But my expectation would be that in November we will have fully caught up to the level that we were looking for.

 I would like to use the analogy of driving through on a highway and driving through fog. Coming into the ramp-up process we went into a process of -- a little bit of just trying to figure out where the problems were and how we were to deal with it.

 I am now confident to tell you guys that we have addressed all the issues and have a few fixes to be made. But for the most part we have driven out of the fog. The fact is that we believe that from here on in we should see some strong increases in availability, efficiencies and also recoveries.

 Going forward I see some very good opportunities for Largo that are not included in our expectations. What we will be doing is looking to increase our revenue through byproducts. We are now investigating PGMs and ilmenite through the sulfides that we believe will have a -- could have a material impact on our cash flows and revenues.

 We're also looking at some exploration. We're doing a little bit more exploration with respect to vanadium, but we're also looking at associated products as well. And we think in the next six months that we could see some very good upside from there as well.

 I guess what I would like to also address is, as many of you have noted, during the construction process we had a fairly stable process of providing information to the market. Starting in June when we went into the ramp-up process we decided that we would provide the technical team with a break and essentially allow them to manage the issue that they had to manage without having additional pressure on them.

 Because we are confident now that the operations are stable and that we are going through an aggressive ramp-up period, we will now start the program again of being very active in informing and being transparent with our shareholders. I don't think that there was any attempt to not be transparent, but I think at the same point we really needed to provide the technical team with the ability to fix what needed to be fixed without pressure.

 So that said I would like to again just highlight the confidence that we have in our operations. There have been many instances, most recently RB Energy, that five for Chapter 11 recently. This is not that situation. We are actually in a very good position and management is very, very confident that we will soon be at maximum capacity well within the time frames that we've provided to investors in the past.

 With that I would like to hand over to the -- Joanna and to see if there are any questions.

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Questions and Answers
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Operator   [1]
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 (Operator Instructions). Cliff Hale-Sanders, Cormark.

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 Cliff Hale-Sanders,  Cormark Securities - Analyst   [2]
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 Thanks for the update. I was just wondering if you can give us a little bit more granularity on where the project stands today, Mark, in terms of utilization. How much physical product have you actually produced to date?

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 Mark Brennan,  Largo Resources Ltd. - President, CEO & Director   [3]
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 Cliff, I am not sure I am at liberty to disclose that actual amount. I think that is a material discussion that I don't think I have the ability to respond to. What I will say is that we stated in our previous update that we are very confident in the 40% mark of our capacity. Our total capacity is running about 800 tonnes per month.

 So we are very confident that we have a very stable operation at the 40% capacity. I would say that where we are now is we are now looking to rise above that 40% capacity. And I am very confident, if you look at the projections that we have in our PowerPoint presentation, that you will see that we will be an contract in November which is where we are targeting somewhere close to 55% capacity.

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 Cliff Hale-Sanders,  Cormark Securities - Analyst   [4]
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 Let me just ask that a slightly different way then, Mark. Like on the projections that you have in the presentation it is a fairly steady ramp up. Do you think that is the way it is actually going to work or is it going to be more step changes?

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 Mark Brennan,  Largo Resources Ltd. - President, CEO & Director   [5]
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 This ramp up chart was actually produced in June and I can assure you that chart hasn't been as it has gone to date. What we encountered, Cliff, is we encountered a lot of issues right up front that we really didn't expect to encounter. And these issues were we didn't find anything critical so there has been nothing that we see that can't be overcome. And most are and I think all of them are actually of a mechanical nature.

 So I think what we had, and I will use for example the kiln -- the kiln. The kiln is a critical piece of equipment where we had problems with the feed screw, which meant we couldn't feed the material into the kiln at the rate of 45 tonnes per hour which was the designated rate for 100% capacity.

 We went through I would have to say at least half a dozen feed screws and finally found -- through our own agencies have found -- or our own devices have found a feed screw that is now operating at the optimal level that we are looking for.

 We are still looking for improvements there. But we essentially, when we had brought in the group to provide us with a kiln we expected when we put the feed through the kiln that essentially we would be at optimal levels. Unfortunately as you know well, Cliff, these things don't work like that and so we had issues, many, many issues in pretty much all the sections that we needed to fix.

 And I would say that those issues have now, for the most part, been fixed. And again, I think what you will see is probably a more -- compared to the presentation that we have I think you'll probably see a little bit more of a higher spike in terms of going forward.

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 Cliff Hale-Sanders,  Cormark Securities - Analyst   [6]
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 Okay, and just before I get off the phone just one question on the overall market. Obviously we're seeing a lot of data about Chinese steel production and things of that nature.

 But could you talk more about specific vanadium rich alloys and any details you see in that specific market to support the ongoing demand, which I think obviously looks fairly positive. But just any anecdotal evidence that makes it a little bit different than the bigger picture that a lot of people are quite concerned about right now?

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 Mark Brennan,  Largo Resources Ltd. - President, CEO & Director   [7]
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 Yes. No, sure. I think obviously it is very evident if you look at the broad-based commodities today that all of them are suffering. And essentially they are coming down in terms of the pricing. What we are looking at with respect to vanadium is, again, has actually had some pretty good demand over the past few years, it has been growing approximately by 5%. We expect that will continue.

 And we expect that will continue from the perspective that you are seeing many, many new products that are using vanadium. They call vanadium a noble alloy, an alloy of the future. And what we are seeing is that in the past -- I've told you this before but just for everyone's benefit, what we have seen in the past is a very limited use for vanadium.

 Now it is going to many, many different products and from that perspective that is driving demand -- even though we may see less steel production we are seeing more vanadium being used for a wide array of products. I will also add on that note, and I think it is fair to say that Largo has never really gone out and pounded the table on batteries. We are still not in a position where we want to do that.

 But I think if you look at what is happening in the world today, renewable energy is a very, very critical item. You look at California. California has stated that by 2020 a third of their energy needs will come from renewable energy.

 You look at Germany, Germany has stated that by 2050, 80% of their power needs or energy needs will come from renewable energy. And we are starting to see signs and pretty good signs that the battery market is starting to take shape. We have always been focused on the steel market, we felt that that is all we needed it to be because there is sufficient growth in the steel market. But our view here is that we could see some very pleasant surprises coming from the vanadium market.

 If you look at pricing for vanadium, pricing currently runs at around CAD5.30 to CAD5.60, the bid offer according to Metal Pages. What we're looking at here is we've seen a little bit of softness in vanadium, it hasn't been huge. And again, I'd like to just highlight a chart that we have in our presentation.

 We have two price charts in the presentation showing that whenever you see vanadium fall below that CAD5.00 mark you tend to see marginal production shut down. So I think there is a pretty good sense that there will be a floor at CAD5.00. I am hoping that any resurgence in the global economy will see us push prices from today. But irrespective of that, we feel confident that because of our low cost base that we will be able to thrive even at a low vanadium price.

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 Cliff Hale-Sanders,  Cormark Securities - Analyst   [8]
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 Okay, great. Thanks for that, Mark. I will pass it on.

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Operator   [9]
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 [Ryan Olson], private investor.

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 Ryan Olson,  - Private Investor   [10]
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 I'm just curious, I was reading on there that we are going to be doing a stock pull back from 10 to 1. I do understand why we do that when the stock is doing well and is rolling, we are still in a penny. I'm just kind of curious, what would the advantage be to doing that now when the market is so hard or difficult right now that we are going to push up to our stock? Of course it just fell down again. I'm just kind of curious what is the thought process in that.

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 Mark Brennan,  Largo Resources Ltd. - President, CEO & Director   [11]
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 Thank you for the question, Ryan. First of all what I will say is that under our current -- we had shareholder approval for the consolidation for the past three years. And so, it is something we had always considered doing and really we felt that the production stage would be the best time to do that.

 When we were out raising money -- as you know, we raised CAD30 million. And when we did that we were providing the undertaking to the investors that we would consolidate because that is what they wanted. I think that what you will find is two different scenarios for consolidation.

 I think there are many instances where you have consolidations where companies are in trouble or they are struggling and they go and consolidate the stock because they need to. This wasn't necessarily a need to consolidate, it was actually the second instance.

 What we are seeing right now is we're seeing strong growth, we're seeing very positive operational methodology or production going on. And from that perspective we felt it was the right time. I think -- and again, this goes back, Ryan, probably about a month to six weeks ago. So what has transpired over the last week or two is very unfortunate.

 But again, we provided undertakings to the people who participated in the funding and largely that is what they wanted to see. That is what they wanted. And the fact is that these people are sophisticated investors, I think that what they wanted to see is less volatility in the stock.

 When the stock moved a penny or two what would happen is you could see 4% or 5% percentage shifts per day. And then what would happen is that would limit the number of institutions that would be prepared to participate in the Company.

 So, yes, would I have consolidated it -- would we have looked into the consolidation had we known that we would have this turbulence that we are facing today? Probably not. But at the same point we did provide the undertaking that upon the completion of the funding we would see the consolidation and again that was what our investors were asking of us.

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Operator   [12]
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 (Operator Instructions). Jim Young, West Family Investments.

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 Jim Young,  West Family Investments - Analyst   [13]
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 A couple questions for you. Number one is since you are running at about 40% of plant capacity at this point where -- how are the costs coming in per pound? Because I understand that you have been estimating it would be about CAD2.50 per pound and is that a normalized basis? But where is the cost today at this point in time?

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 Mark Brennan,  Largo Resources Ltd. - President, CEO & Director   [14]
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 Again, I am not at liberty to disclose the cost, that is material and I'm being advised not to disclose. But what I will say is that we expect to have operational profitability, i.e., our revenues will exceed our costs in December of this year.

 So I think that what is happening is obviously in your CAD2.50 number you quote is during normal and efficient operations, we are not quite there yet. And let me just stress, when they say that we are at 40% capacity, that is actually the kind of run rate that we are at with shutdowns, etc.

 And I think those shutdowns are now becoming a thing of the past. I think our capacity to operate is probably higher and probably within the 50s range. But at the same point, again, we're just coming out of that instability period where things are now looking very positive.

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 Jim Young,  West Family Investments - Analyst   [15]
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 Okay. So if your revenues are going to exceed your costs in December is that at the -- is that suggesting -- is that basically upon like a [6%] operating range? I'm just trying to get a sense of the sensitivity. To where you reset thresholds.

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 Mark Brennan,  Largo Resources Ltd. - President, CEO & Director   [16]
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 That would be in the mid-60s.

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 Jim Young,  West Family Investments - Analyst   [17]
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 Mid-60s?

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 Mark Brennan,  Largo Resources Ltd. - President, CEO & Director   [18]
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 Yes.

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 Jim Young,  West Family Investments - Analyst   [19]
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 Okay. And following up then is that if we think about on the heels of your recent capital raise, under what conditions would you need to raise additional capital for -- to fund the operations?

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 Mark Brennan,  Largo Resources Ltd. - President, CEO & Director   [20]
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 Everything -- our cash requirements are really going to be dependent on production. There is no other variable that has the same sensitivity to production. So we need to produce, we need to produce what we're expecting to produce and our hope is that we will exceed our targets.

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 Jim Young,  West Family Investments - Analyst   [21]
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 Okay, and then lastly. Can you just share with us as you are mining the vanadium in your open pit mine how is the quality of the ore body that you are experiencing at this time?

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 Mark Brennan,  Largo Resources Ltd. - President, CEO & Director   [22]
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 Mode, the quality of the ore body is -- I mean, obviously it is the highest grade deposit in the world, very high quality deposit. The fact of the matter is that the ore grade, and let's say the characteristics of the ore were perhaps a little different than we had anticipated throughout partial portion of the mine.

 And what we did is when we did our feasibility study we did that on the massive magnetite. And the massive magnetite performed very well and we had very few issues. Now when we actually started mining particularly the oxidized disseminated material at surface, which we had done Davis Tube testing on previously and which was very high-grade, probably running 2.5% -- up to 2.5%.

 But what we are looking at there is what we found is that the material would crumble and going through the mill would actually create like a muck or a mud. And so what we are doing there to remedy that is we're actually looking to add two wet mag separators and two dry mag separators. Now, so that was one of the issues obviously that needed a fix that we had to remedy.

 We are very confident that the dry mag [step] which will be put in the second stage of the crushing unit and the wet mag step which will be twinned with the existing mag steps, that that will remedy the issue.

 Now a positive outcome of that is that we believe that the mill essentially will be in much better shape for the expansion. And actually by bringing in the wet mag and the dry mag steps it will actually reduce any capital -- it will probably make sure that we are well within our quota for the mill section of the expansion.

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 Jim Young,  West Family Investments - Analyst   [23]
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 Okay great. And then lastly, when would you -- when is the next shipment of vanadium to Glencore expected to take place?

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 Mark Brennan,  Largo Resources Ltd. - President, CEO & Director   [24]
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 We are shipping on a continual basis. We are shipping on a continual basis and the fact is that the material is within spec, but it is a continual basis, Jim.

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 Jim Young,  West Family Investments - Analyst   [25]
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 So are these shipments occurring weekly, every other week, monthly?

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 Mark Brennan,  Largo Resources Ltd. - President, CEO & Director   [26]
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 Weekly.

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 Jim Young,  West Family Investments - Analyst   [27]
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 Weekly.

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 Mark Brennan,  Largo Resources Ltd. - President, CEO & Director   [28]
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 Yes.

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 Jim Young,  West Family Investments - Analyst   [29]
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 Okay. Great. Thank you very much.

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Operator   [30]
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 [Mike Barrow], private investor.

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 Mike Barrow,  - Private Investor   [31]
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 Just a question on the byproduct. I wonder are you planning to perhaps put those circuits in while the main system is still being ramped up or is that kind of afterwards? And then are they already funded with some of the funds from the recent capital raise?

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 Mark Brennan,  Largo Resources Ltd. - President, CEO & Director   [32]
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 Thank you, Mike. Where we are with -- what we found with respect to the -- when we are purchasing the material going through the mill we are processing the magnetite which contains -- the vanadium is contained within and then we're also processing sulfides. And what we're finding in the sulfides is that we are finding good quantities of PGMs as well as ilmenite.

 Now we started the investigation -- we started investigations probably I would say five, six months ago. And our hope is that we will have the conclusion of those investigations in the very near term. And what we are looking at is I would expect that they will have a contribution to cash flows in 2015. And I think they should have a fairly good contribution to cash flows.

 Again, it is an investigation stage. We don't expect -- because of the nature of the fact that this is material that has already been separated, where the ilmenite and the PGMs have been high graded, let's call it. We don't believe that it will have a substantial CapEx cost and we do expect that that CapEx will be met with the funding that we had.

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 Mike Barrow,  - Private Investor   [33]
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 Great, thanks.

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Operator   [34]
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 Darcie Ladd, there are no further questions at this time. Please proceed.

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 Darcie Ladd,  Largo Resources Ltd. - Manager of Corp. Development   [35]
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 Again, we would like to thank you all for participating in the call today and we remind you that this call has been recorded and will be posted to our website. Should you have any remaining questions, please feel free to contact Mark or myself directly or by emailing info@LargoResources.com at any time.

 We look forward to continuing to update you on our progress through email updates on our website at LargoResources.com, on Twitter, Facebook, Instagram, LinkedIn and on YouTube. Thank you.

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Operator   [36]
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 Ladies and gentlemen, this concludes your conference call for today. We thank you for participating. And we ask that you please disconnect your lines.




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