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Co.'s Drilling Causes Production Drop, Cost Rise in Q1/23
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This Canadian vanadium firm revised its guidance for this year, noted a Paradigm Capital report.

Based on its Q1/23 results, Largo Inc. (LGO:TSX; LGO:NASDAQ) had its target price by Paradigm Capital lowered to CA$15 per share from CA$16, analyst Gordon Lawson reported in a May 11 research note.

Return Still Attractive

Despite being reduced, the target price still implies a notable return for investors from where Largo is now trading at CA$5.36 per share. The Canadian company remains a Buy.

Lawson commented, "Our thesis on Largo is threefold: a positive outlook on vanadium prices, the low-cost [vanadium] Maracás mine, and upside to our net asset value from several ongoing growth projects."

Results Overall a Mix

Lawson presented Largo's Q1/23 results and compared them to the same from the last quarter and from a year ago. Generally, YOY, production was down, and sales and costs were up.

Operationally in Q1/23, Largo produced about 2,100 tons of vanadium equivalent (2.1 Kt V2O5 Eq), 5% more than in Q4/22 but 13% less than in Q1/22. Largo cut production during Q1/23 by about 1.5 Kt V205 Eq because it was infill drilling the Campbell pit at its Maracás project in Brazil.

Paradigm's Lawson commented, "Our thesis on Largo is threefold: a positive outlook on vanadium prices, the low-cost [vanadium] Maracás mine, and upside to our net asset value from several ongoing growth projects."

Largo's sales of V2O5 Eq during Q1/23 were 2.8 Kt, down 2% QOQ but up 28% YOY.

Q1/23 cash costs came in at US$5.15 per pound (US$5.15/lb), the same as in Q4/22 but up 30% from US$3.97 per pound in Q1/22. Campbell pit drilling accounted for about US$0.20/lb of the rise in cash costs, Lawson noted.

Financially in Q1/23, Largo generated US$57.4 million (US$57.4M) in revenue. This figure was up QOQ and YOY, 21% and 35%, respectively. EBITDA was US$11.4M, down 5% YOY.

Adjusted earnings per share was (US$0.02), an improvement over Q4/22 and Q1/22.

FY23 Guidance Lowered

Largo revised its full-year 2023 (FY23) guidance such that it is worse than initial estimates. The company lowered expected production and sales and raised forecasted operating costs.

Specifically, anticipated FY23 production is now in the 9–11 Kt range; previously, it was 11–12 Kt. Expected FY23 sales are now 8.7–10.7 Kt versus 10.3–11.3 Kt initially.

As for its FY23 operating cost projection, Largo revised the upper end of the range to US$5.65/lb from US$5.25; the lower end remains the same at US$4.85/lb.  

What To Watch For

Largo has a significant event expected to happen later this year, which could boost its stock price.

It is the commencement of ilmenite production, slated for Q3/23, at which time management will provide further guidance. Largo is expected to start selling its produced ilmenite in the subsequent quarter.

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Important Disclosures:

1) Largo Inc. is a billboard sponsor of Streetwise Reports and has paid SWR a sponsorship fee between US$3,000 and US$5,000. 

3)Doresa Banning wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor.

4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.

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Disclosures for Paradigm Capital, Largo Inc., May 11, 2023

Paradigm Capital Inc. expects to receive or intends to seek compensation for investment banking services from the subject companies in the next 3 

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