Largo Inc. (TSX:LGO; NASDAQ:LGO) is looking to capitalize on the demand for vanadium batteries by expanding its presence in Spain and potentially in Italy, thereby establishing a foothold in Europe. The company is also looking ahead by positioning itself to take advantage of the Inflation Reduction Act in the U.S. further complementing its clean energy strategy.
Largo Inc. is a vanadium company that supplies VPURE™ and VPURE+™, its signature high-quality vanadium products. Its flagship property is a high-grade vanadium deposit at the Maracás Menchen Mine, located in Brazil. Two major pillars support Largo's business: mining vanadium and creating energy storage.
Largo and the Changing Landscape of Vanadium
Largo has announced a number of changes and new initiatives at the company recently. The first is that Largo plans on appointing a new CEO. Daniel Tellechea is currently the Interim chief executive officer / director and is focused in part on two principles: the return of normalized operations and further cost management.
We have seen large shifts in the vanadium market.," Largo commented. "In the past, battery production only comprised about 1% of the market for vanadium, but we expect that to rise to as much as 10% in 2023. The effect of this rise in demand is a steady increase in the price of vanadium."
The company is also taking steps to expand its foothold overseas in Europe. The company is currently in joint venture negotiations with Ansaldo, a major power generation and gas turbine company owned by the Italian government.
Largo is in the final stretch of installing its inaugural 6.1 MWh VRFB for Enel Green Power in Spain, where it is looking to integrate a solar farm with vanadium batteries.
It reports that it is also ideally positioned relative to the United States Inflation Reduction Act. While they are a Canadian company, its clean energy business operations are located in the United States. Due to their position in the U.S. economy, they anticipate benefitting from government funding.
Shovel Stocks is of the opinion that Largo Physical Vanadium Corp. could energize the vanadium market.
Largo recently reported the results of its first quarter of operations and sales. The company produced, overall, 2,111 tons of vanadium pentoxide (V2O5) and sold, overall, 2,849 tons of V2O5 in Q1 of 2023. These results are in the upper range of the company's quarterly production guidance.
The construction of Largo's ilmenite concentration plant has gone as planned and according to schedule. Largo expects to finish commissioning by Q2 of 2023 and plans to ramp up production in Q3 of 2023. Largo Clean Energy has also persisted with the installation of its vanadium redox flow battery (VFRB) for Enel Green Power Espana in Q1 of 2023.
Last April, the company completed the membership registration for the Long Duration Energy Storage Council. Largo is still looking at opportunities in the European energy market, and discussions between the company and Ansaldo have progressed to final agreement negotiations.
According to Daniel Tellechea, the interim CEO, "I am pleased to report that we are tracking in line with our 2023 production and sales guidance as of Q1 2023. We expect to reach a number of significant milestones in 2023, including the successful delivery of the company's first VRFB system in Spain, the inauguration of its ilmenite concentration plant as well as finalizing negotiations with Ansaldo, which remain ongoing. As the vanadium sector continues to exhibit steady demand, our focus remains on delivering these milestones over the course of the year in an effort to maximize shareholder value."
Vanadium is a transition metal with applications in the green energy sector, particularly in manufacturing batteries. Investment in green energy infrastructure has driven interest in the mineral for the past few years.
According to Strategic Resources, there are several factors that could drive investor interest in vanadium. One is that vanadium redox batteries have the potential to grow as a result of the need for grid-scale storage in renewable energy. Another is that there are only two primary producers in Western markets, one of which is Largo.
Shovel Stocks is of the opinion that Largo Physical Vanadium Corp. could energize the vanadium market. It noted similar action in the market upon the establishment of the Sprott Physical Uranium Trust (SPUT): "The constant buying power of the Sprott Physical Uranium Trust (SPUT) in the uranium spot market drove the uranium spot price up from the low US$30s to above US$50."
According to another analysis by Stockhead, on March 16, 2023, in relation to the Critical Raw Minerals Act (CRMA), the European Union (EU) listed vanadium as among thirty-four raw minerals essential to Europe's modern economy. The EU is attempting to source these minerals from sources outside of China, which currently controls the lion's share of the world's critical or strategic raw minerals.
Catalyst: Advancing VRFB and More
Argus' Equity Research Report regards the Maracás Menchen Mine as primed for improved production in the future. Argus notes that the circumstances that kept production down in 2022, such as unusually high rainfall and a change in mining contractors, are unlikely to repeat themselves. CIBC Capital Markets also noted that heavy rainfall inhibited the mine's performance in 2022 but that "the vanadium market has seen strength driven by the China re-opening narrative."
Argus' Equity Research Report regards the Maracas Menchen Mine as primed for improved production in the future.
Aside from the bullish vanadium market, Largo has a few future initiatives that it expects to boost the company's value. Its business strategy is reportedly based on two goals: becoming a leader in the industry through its outlined growth plan within its mining pillar and supporting a low-carbon future through energy storage through its U.S.-based clean energy business.
Largo expects to have its Ilmenite plant online by Q3 2023 and expects to generate revenue in 2024 from ilmenite concentrate sales.
Streetwise Ownership Overview*
Largo is also advancing its clean energy division and expects that its Vanadium Redox Flow Battery (VRFB) for Enel Green Power in Spain will be installed in Q3 of 2023. The company is also in joint venture negotiations with Ansaldo Green Tech in Italy.
Ownership and Share Structure
Largo reports that institutions hold 16,137,220 shares (25.21%), while insiders hold 428,507 shares (0.67%). VC/PE firms (>5% stake) hold 28,039,020 shares (43.81%). The remaining 30% of shares are held by the public or other entities.
The institutions that hold the largest amount of shares in the company are Arias Resource Capital Management LP with 28,039,020, West Family Investments LLC with 5,572,637, Grantham Mayo Van Otterloo & Co. LLC with 4,903,767, and BNY Asset Management with 1,175,900 shares. Arias Resource Capital and the PE Fund represent strategic investors. Alberto Arias is also the Chairman of the Board.
Largo has US$62.7 million in the bank as of September 30, 2022.
Largo's market cap is CA$470 million or US$340 million. There are 64 million shares, 341 thousand warrants (US$13.00 per share), and 800 thousand options (407 thousand exercisable, with an average price of US$13.39 per share). They trade in the 52-week period between 6.34 and 16.40.
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