UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 40-F

 

ý         REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

¨         ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended

Commission File Number

 

LARGO RESOURCES LTD.

(Exact name of Registrant as specified in its charter)

 

Ontario, Canada

(Province or other jurisdiction of incorporation or organization)

 

1400

(Primary Standard Industrial Classification Code Number (if applicable))

 

N/A

(I.R.S. Employer Identification Number (if applicable))

 

55 University Avenue

Suite 1105

Toronto, Ontario M5J 2H7

(416) 861-9797

(Address and telephone number of Registrant’s principal executive offices)

 

Intertrust Corporate Services Delaware Ltd.

200 Bellevue Parkway, Suite 210

New Castle County

Wilmington, Delaware 19809

(302) 798-5867

(Name, address (including zip code) and telephone number (including area code)

of agent for service in the United States)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of each class

 

Trading
Symbol(s)

 

Name of each exchange on which registered

Common Shares

 

LGO

 

The Nasdaq Stock Market LLC

 

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

 

For annual reports, indicate by check mark the information filed with this form:

 

¨

Annual information form

¨

Audited annual financial statements

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: N/A

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

 

Yes o

 

 

No x

 

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).

 

Yes o

 

 

No ¨

 

Indicate by check mark whether the Registrant is an emerging growth company, as defined in Rule 12b-2 of the Exchange Act.

 

 

 

 

Emerging growth company x

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.

 

 

 

 

¨

 

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

 

 

 

 

¨

 

 

 

 

EXPLANATORY NOTE

 

Largo Resources Ltd. (the “Registrant”) is a Canadian reporting issuer eligible to file its registration statement pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), on Form 40-F pursuant to the multi-jurisdictional disclosure system of the Exchange Act. The Registrant is a “foreign private issuer” as defined in Rule 3b-4 under the Exchange Act. Equity securities of the Registrant are accordingly exempt from Sections 14(a), 14(b), 14(c), 14(f) and 16 of the Exchange Act pursuant to Rule 3a12-3.

 

FORWARD LOOKING STATEMENTS

 

This Registration Statement on Form 40-F, including the exhibits hereto (collectively, the “Form 40-F”) includes certain statements that constitute “forward-looking statements” and “forward-looking information” within the meaning of applicable securities laws (collectively “forward-looking statements”). These forward-looking statements concern the Registrant’s projects, capital, anticipated financial performance, business prospects and strategies and other general matters, and are subject to certain risks and uncertainties that could cause actual results to differ materially from those included in the forward-looking statements. The use of words such as “intend,” “anticipate,” “continue,” “estimate,” “expect,” “may,” “will,” “project,” “should,” “believe” and similar expressions (including negative and grammatical variations) are intended to identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance are not statements of historical fact and may constitute forward-looking statements. Statements relating to mineral resources are also forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions that the mineral resources described can be profitably produced in the future. There is no certainty that it will be commercially viable to produce any portion of the mineral resources. Forward-looking statements include statements with respect to: (i) the Registrant’s sales operations and anticipated sales of vanadium products; (ii) the Registrant’s goals regarding development of its projects and further exploration and development of its properties; (iii) the Registrant’s proposed plans for advancing its projects, and potential future exploration and development projects; (iv) the Registrant’s expectations regarding the completion of, resulting production from, and anticipated benefits of, its anticipated ferrovanadium (“FeV”) conversion plant and vanadium sesquioxide (“V2O3”) plant; (v) the Registrant’s expectations and proposed plans for Largo Clean Energy and its vertically integrated vanadium redox flow battery business; (vi) the Registrant’s expectations regarding the results of the initial chemical pilot plant tests and the potential to produce TiO2; (vii) expectations regarding the continuity of mineral deposits; (viii) future prices of vanadium pentoxide (“V2O5”); (ix) future production at the Registrant’s Maracás Menchen mine; (x) the extent and overall impact of the COVID-19 pandemic; (xi) the results in the Technical Report (as this term is defined in the Registrant’s Annual Information Form for the fiscal year ended December 31, 2020, attached hereto as Exhibit 99.67) including resource estimates; (xii) expectations regarding any environmental issues that may affect planned or future exploration and development programs and the potential impact of complying with existing and proposed environmental laws and regulations; (xiii) receipt and timing of third party approvals; (xiv) government regulation of mineral exploration and development operations in Brazil; (xv) expectations regarding any social or local community issues in Brazil that may affect planned or future exploration and development programs; and (xvi) statements in respect of V2O5 demand and supply.

 

These forward-looking statements are only predictions based on current information and knowledge, some of which may be attributed to third party industry sources. Actual future events or results may differ materially. Undue reliance should not be placed on such forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. By its nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not be realized. The following are some of the assumptions upon which forward-looking statements are based: (i) that general business and economic conditions will not change in a material adverse manner; (ii) demand for, and stable or improving price of, V2O5 and FeV; (iii) that the Registrant will enter into agreements for the sales of vanadium products on favorable terms and for the sale of substantially all of its annual production capacity; (iv) receipt of regulatory and governmental approvals, permits and renewals in a timely manner; (v) that the Registrant will not experience any material accident, labour dispute or failure of plant or equipment or other material disruption in the Registrant’s operations at the Maracás Menchen mine; (vi) the availability of financing for operations and development; (vii) the Registrant’s ability to procure equipment and operating supplies in sufficient quantities and on a timely basis; (viii) that the Registrant will have sufficient capital resources available for the build out of the ferrovanadium conversion plant and V2O3 plant; (ix) that the ferrovanadium conversion plant and V2O3 plant will be completed on budget and in a reasonable timeframe; (x) that the Vanadium Trioxide Plant will be completed on budget and in a reasonable timeframe; (xi) that the estimates of the mineral resources and mineral reserves at the Maracás Menchen mine are within reasonable bounds of accuracy

 

2

 

(including with respect to size, grade and recovery); (xii) the Registrant’s ability to attract and retain skilled personnel and directors; and (xiii) the accuracy of the Registrant’s mineral reserves and mineral resource estimates (including size, grade and recoverability) and the geological, operational and price assumptions on which these are based.

 

Actual results could differ materially from those anticipated in these forward-looking statements as a result of the risks and uncertainties including, without limitation: (i) volatility in prices of, and demand for, V2O5, V2O3 or FeV; (ii) risks inherent in mineral exploration and development; (iii) uncertainties associated with estimating mineral resources and mineral reserves; (iv) uncertainties related to title to the Registrant’s mineral projects; (v) revocation of government approvals; (vi) tightening of the credit markets, global economic uncertainty and counterparty risk; (vii) failure of plant, equipment or processes to operate as anticipated; (viii) unexpected events and delays during construction and development; (ix) competition for, among other things, capital and skilled personnel; (x) geological, technical and drilling problems; (xi) fluctuations in foreign exchange or interest rates and stock market volatility; (xii) rising costs of labour and equipment; (xiii) disruption caused by labour actions; (xiv) risks associated with political and/or economic instability in Brazil; (xv) inherent uncertainties involved in the legal dispute resolution process, including in foreign jurisdictions; (xvi) the Registrant’s ability to build, finance and operate its vanadium redox flow battery business; (xvii) changes in income tax and other laws of foreign jurisdictions; and (xviii) other factors discussed under the “Risk Factors” section in the Registrant’s Annual Information Form for the fiscal year ended December 31, 2020, attached hereto as Exhibit 99.67.

 

Additional risks and uncertainties not currently known to the Registrant, or that the Registrant currently deems to be immaterial, may also materially and adversely affect the Registrant’s business and prospects. Should one or more of these risks and uncertainties materialize, or should any of the underlying assumptions prove incorrect, actual results may vary materially from those described in forward-looking statements.

 

Although the Registrant has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. The reader is cautioned not to place undue reliance on forward-looking statements.

 

The forward-looking statements are presented for the purpose of assisting investors in understanding the Registrant’s plans, objectives and expectations in making an investment decision and may not be appropriate for other purposes. These forward-looking statements are expressly qualified in their entirety by this cautionary statement. Forward-looking statements contained in this Form 40-F are made as of the date of this Form 40-F or the exhibits hereto, as applicable, and are accordingly subject to change after such date. The Registrant disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements, or to reflect the occurrence of anticipated or unanticipated events, except as required by law. If the Registrant updates any one or more forward-looking statements, no inference should be drawn that the Registrant will make additional updates with respect to those or other forward-looking statements.

 

DIFFERENCES IN UNITED STATES AND CANADIAN REPORTING PRACTICES

 

The Registrant is permitted, under a multijurisdictional disclosure system adopted by the United States, to prepare this Form 40-F in accordance with Canadian disclosure requirements, which are different from those of the United States. The Registrant has historically prepared its consolidated financial statements, which are filed with this Form 40-F, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, which differ in certain respects from United States generally accepted accounting principles (“U.S. GAAP”) and from practices prescribed by the United States Securities Exchange Commission (the “SEC”). Therefore, the Registrant’s financial statements filed with this Registration Statement may not be comparable to financial statements prepared in accordance with U.S. GAAP.

 

The Registrant is subject to the reporting requirements of applicable Canadian securities laws, and as a result reports its mineral reserves and mineral resource estimates according to Canadian standards. Canadian reporting requirements for disclosure of mineral properties are governed by National Instrument 43-101, Standards of Disclosure for Mineral Projects (“NI 43-101”). Certain of the definitions included in NI 43-101 are adopted from those given by the Canadian Institute of Mining, Metallurgy and Petroleum — CIM Definition Standards on Mineral Resources and Mineral Reserves, adopted by the CIM Council May 10, 2014, as amended (the “CIM Definition Standards”). NI 43-101 establishes standards for all public disclosure an issuer makes of scientific and technical information concerning mineral projects. These standards differ significantly from the mineral reserve disclosure requirements of the SEC set forth in Industry Guide 7. Consequently, information regarding mineralization contained in this Form 40-F is not comparable to similar information that would generally be disclosed by U.S. companies in

 

3

 

accordance with the rules of the SEC. In particular, the SEC’s Industry Guide 7 applies different standards in order to classify mineralization as a reserve. As a result, the definitions of proven and probable reserves used in NI 43-101 differ from the definitions used by the SEC in Industry Guide 7. Under SEC standards, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. Among other things, all necessary permits would be required to be in hand or issuance imminent in order to classify mineralized material as reserves under the SEC standards. Accordingly, mineral reserve estimates contained in this Form 40-F may not qualify as “reserves” under SEC standards. In addition, this Form 40-F uses the terms “measured mineral resources,” “indicated mineral resources” and “inferred mineral resources” to comply with the reporting standards in Canada. The SEC does not currently recognize mineral resources and U.S. companies are generally not permitted to disclose mineral resources of any category in documents they file with the SEC. Investors are specifically cautioned not to assume that any part or all of the mineral deposits in these categories will ever be converted into mineral reserves as defined in NI 43-101 or Industry Guide 7. Further, “inferred mineral resources” have a great amount of uncertainty as to their existence and as to whether they can be mined legally or economically. Therefore, investors are also cautioned not to assume that all or any part of an inferred resource could ever be mined economically. It cannot be assumed that all or any part of “measured mineral resources,” “indicated mineral resources,” or “inferred mineral resources” will ever be upgraded to a higher category. Investors are cautioned not to assume that any part of the reported “measured mineral resources,” “indicated mineral resources,” or “inferred mineral resources” in this Form 40-F is economically or legally mineable. The SEC has adopted amendments to its disclosure rules to modernize the mineral property disclosure requirements for issuers whose securities are registered with the SEC under the Exchange Act. These amendments became effective February 25, 2019 (the “SEC Modernization Rules”) and, following a two-year transition period, the SEC Modernization Rules will replace the historical property disclosure requirements for mining registrants that were included in SEC Industry Guide 7. Following the transition period, as a foreign private issuer that files its annual report on Form 40-F with the SEC pursuant to the multi-jurisdictional disclosure system, the Registrant is not required to provide disclosure on its mineral properties under the SEC Modernization Rules and will continue to provide disclosure under NI 43-101. If the Registrant ceases to be a foreign private issuer or lose its eligibility to file its annual report on Form 40-F pursuant to the multi-jurisdictional disclosure system, then the Registrant will be subject to the SEC Modernization Rules which differ from the requirements of NI 43-101. The SEC Modernization Rules include the adoption of terms describing mineral reserves and mineral resources that are “substantially similar” to the corresponding terms under the CIM Definition Standards. As a result of the adoption of the SEC Modernization Rules, the SEC now recognizes estimates of “measured mineral resources,” “indicated mineral resources” and “inferred mineral resources.” In addition, the SEC has amended its definitions of “proven mineral reserves” and “probable mineral reserves” to be “substantially similar” to the corresponding CIM Definitions. U.S. investors are cautioned that while the above terms are “substantially similar” to CIM Definitions, there are differences in the definitions under the SEC Modernization Rules and the CIM Definition Standards. Accordingly, there is no assurance any mineral reserves or mineral resources that the Registrant may report as “proven mineral reserves,” “probable mineral reserves,” “measured mineral resources,” “indicated mineral resources” and “inferred mineral resources” under NI 43-101 would be the same had the Registrant prepared the reserve or resource estimates under the standards adopted under the SEC Modernization Rules. U.S. investors are also cautioned that while the SEC will now recognize “measured mineral resources,” “indicated mineral resources” and “inferred mineral resources,” investors should not assume that any part or all of the mineralization in these categories will ever be converted into a higher category of mineral resources or into mineral reserves. Mineralization described using these terms has a greater amount of uncertainty as to its existence and feasibility than mineralization that has been characterized as reserves. Accordingly, investors are cautioned not to assume that any measured mineral resources, indicated mineral resources, or inferred mineral resources that the Registrant reports are or will be economically or legally mineable. Further, “inferred mineral resources” have a greater amount of uncertainty as to their existence and as to whether they can be mined legally or economically. Therefore, U.S. investors are also cautioned not to assume that all or any part of the “inferred mineral resources” exist. Under Canadian securities laws, estimates of “inferred mineral resources” may not form the basis of feasibility or pre-feasibility studies, except in rare cases. For the above reasons, information contained in this Form 40-F containing descriptions of the Registrant’s mineral reserve and mineral resource estimates is not comparable to similar information made public by U.S. companies subject to the reporting and disclosure requirements of the SEC.

 

DOCUMENTS FILED PURSUANT TO GENERAL INSTRUCTIONS

 

In accordance with General Instruction B.(1) of Form 40-F, the Registrant hereby incorporates by reference Exhibits 99.1 through Exhibit 99.80, inclusive, as set forth in the Exhibit Index attached hereto.

 

In accordance with General Instruction D.(9) of Form 40-F, the Registrant has filed the written consent of the experts named in the foregoing Exhibits as Exhibits 99.76 to 99.80, as set forth in the Exhibit Index attached hereto.

 

4

 

TAX MATTERS

 

Purchasing, holding, or disposing of securities of the Registrant may have tax consequences under the laws of the United States and Canada that are not described in this Form 40-F.

 

DESCRIPTION OF THE SECURITIES

 

The required disclosure is included under the heading “Description of Capital Structure” in the Registrant’s Annual Information Form for the year ended December 31, 2020, attached hereto as Exhibit 99.67.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

The Registrant does not have any off-balance sheet arrangements (as that term is defined in paragraph 11(ii) of General Instruction B to Form 40-F) that have or are reasonably likely to have a current or future effect on the Registrant’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

 

The following table summarizes the contractual obligations of the Registrant as of December 31, 2020:

 

 

 

Payments due by period

 

 

 

Total

 

Less than 1
year

 

1-3 years

 

3-5 years

 

More than 5
years

 

 

 

(thousands of United States dollars)

 

Contractual obligations

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilites

 

15,968

 

15,968

 

—

 

—

 

—

 

Long-term debt

 

24,788

 

24,788

 

—

 

—

 

—

 

Capital lease

 

—

 

—

 

—

 

—

 

—

 

Operating lease

 

610

 

289

 

321

 

—

 

—

 

Purchase obligations

 

—

 

—

 

—

 

—

 

—

 

Management obligations

 

—

 

—

 

—

 

—

 

—

 

Other long-term liabilities reflected in the financial statements

 

—

 

—

 

—

 

—

 

—

 

Total

 

41,366

 

41,045

 

321

 

—

 

—

 

 

NASDAQ CORPORATE GOVERNANCE

 

A foreign private issuer that follows home country practices in lieu of certain provisions of the listing rules of the Nasdaq Stock Market LLC (the “Nasdaq Stock Market Rules”) must disclose the ways in which its corporate governance practices differ from those followed by domestic companies. As required by Nasdaq Rule 5615(a)(3), the Registrant will disclose on its website, www.largoresources.com, as of the listing date, each requirement of the Nasdaq Stock Market Rules that it does not follow and describe the home country practice followed in lieu of such requirements.

 

UNDERTAKINGS

 

The Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to: the securities registered pursuant to this Form 40-F; the securities in relation to which the obligation to file an annual report on Form 40-F arises; or transactions in said securities.

 

5

 

CONSENT TO SERVICE OF PROCESS

 

Concurrently with the filing of the Registration Statement on Form 40-F, the Registrant will file with the Commission a written irrevocable consent and power of attorney on Form F-X. Any change to the name or address of the Registrant’s agent for service shall be communicated promptly to the Commission by amendment to the Form F-X referencing the file number of the Registrant.

 

SIGNATURES

 

Pursuant to the requirements of the Exchange Act, the Registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

LARGO RESOURCES LTD.

 

 

 

 

By:

/s/ Ernest Cleave

 

Name:

Ernest Cleave

 

Title:

Chief Financial Officer

 

Date: April 14, 2021

 

6

 

EXHIBIT INDEX

 

The following documents are being filed with the Commission as Exhibits to this Registration Statement on Form 40-F:

 

Exhibit

 

Description

99.1

 

Press Release dated January 14, 2020

99.2

 

Press Release dated January 22, 2020

99.3

 

Press Release dated February 11, 2020

99.4

 

Annual Information Form for the year ended December 31, 2019, dated March 16, 2020

99.5

 

Management’s Discussion and Analysis for the year ended December 31, 2019

99.6

 

Consolidated Financial Statements for the years ended December 31, 2018 and 2019, dated March 20, 2020

99.7

 

Form 13-502F1 dated March 20, 2020

99.8

 

Form 13-501F1 dated March 20, 2020

99.9

 

Form 52-109F1 dated March 20, 2020 (CEO)

99.10

 

Form 52-109F1 dated March 20, 2020 (CFO)

99.11

 

Press Release dated March 20, 2020

99.12

 

Annual Information Form for the year ended December 31, 2019, dated March 20, 2020

99.13

 

Form 52-109F1R dated March 23, 2020 (CEO)

99.14

 

Form 52-109F1R dated March 23, 2020 (CFO)

99.15

 

Unaudited Condensed Interim Consolidated Financial Statements for the three months ended March 31, 2020 and 2019

99.16

 

Management’s Discussion and Analysis for the three months ended March 31, 2020

99.17

 

Confirmation of Notice of Record and Meeting Dates dated April 6, 2020

99.18

 

Press Release dated April 13, 2020

99.19

 

Press Release dated April 22, 2020

99.20

 

Press Release dated May 1, 2020

99.21

 

Notice and Management Information Circular of the Annual and Special Meeting of Shareholders of Largo Resources Ltd. to be held on June 8, 2020, dated May 1, 2020

99.22

 

Notice of the Annual and Special Meeting of Shareholders of Largo Resources Ltd. to be held on June 8, 2020, dated May 1, 2020

99.23

 

Form 52-109F2 dated May 12, 2020 (CEO)

99.24

 

Form 52-109F2 dated May 12, 2020 (CFO)

99.25

 

Press Release dated May 12, 2020

99.26

 

Form of Proxy for the Annual and Special Meeting of Shareholders of Largo Resources Ltd. to be held on June 8, 2020

 

7

 

99.27

 

Certificate of Dissemination dated May 19, 2020

99.28

 

Press Release dated June 8, 2020

99.29

 

Report of Voting Results for the Annual and Special Meeting of Shareholders of Largo Resources Ltd. held on June 8, 2020

99.30

 

Unaudited Condensed Interim Consolidated Financial Statements for the three and six months ended June 30, 2020 and 2019

99.31

 

Management’s Discussion and Analysis for the three and six months ended June 30, 2020

99.32

 

Press Release dated July 16, 2020

99.33

 

Press Release dated July 20, 2020

99.34

 

Press Release dated July 22, 2020

99.35

 

Form 52-109F2 dated August 13, 2020 (CEO)

99.36

 

Form 52-109F2 dated August 13, 2020 (CFO)

99.37

 

Press Release dated August 13, 2020

99.38

 

Alternative Monthly Report dated September 3, 2020

99.39

 

Unaudited Condensed Interim Consolidated Financial Statements for the three and nine months ended September 30, 2020 and 2019

99.40

 

Management’s Discussion and Analysis for the three and nine months ended September 30, 2020

99.41

 

Press Release dated October 19, 2020

99.42

 

Press Release dated October 21, 2020

99.43

 

Form 52-109F2 dated November 12, 2020 (CEO)

99.44

 

Form 52-109F2 dated November 12, 2020 (CFO)

99.45

 

Press Release dated November 12, 2020

99.46

 

Press Release dated December 8, 2020

99.47

 

Press Release dated December 8, 2020

99.48

 

Press Release dated December 17, 2020

99.49

 

Form 62-103F1 dated December 18, 2020

99.50

 

Confirmation of Notice of Record and Meeting Dates dated January 12, 2021

99.51

 

Press Release dated January 14, 2021

99.52

 

Press Release dated January 20, 2021

99.53

 

Certificate of abridgement dated February 5, 2021 (CFO)

99.54

 

Form of Proxy for the Special Meeting of Shareholders of Largo Resources Ltd. to be held on March 1, 2021

99.55

 

Management Information Circular of the Special Meeting of Shareholders of Largo Resources Ltd. to be held on March 1, 2021, dated January 25, 2021

99.56

 

Notice of the Special Meeting of Shareholders of Largo Resources Ltd. to be held on March 1, 2021, dated January 25, 2021

99.57

 

Press Release dated February 8, 2021

99.58

 

Certificate of Dissemination dated February 8, 2021

 

8

 

99.59

 

Press Release dated March 1, 2021

99.60

 

Report of Voting Results for the Special Meeting of Shareholders of Largo Resources Ltd. held on March 1, 2021

99.61

 

Press Release dated March 4, 2021

99.62

 

Letter of Transmittal

99.63

 

Material Change Report dated March 5, 2021

99.64

 

Articles of Amendment of Largo Resources Ltd. dated effective March 4, 2021

99.65

 

Press Release dated March 15, 2021

99.66

 

Press Release dated March 17, 2021

99.67

 

Annual Information Form for the year ended December 31, 2020, dated March 17, 2021

99.68

 

Management’s Discussion and Analysis for the year ended December 31, 2020

99.69

 

Annual Consolidated Financial Statements for the years ended December 31, 2019 and 2020

99.70

 

ON Form 13-502F1 (Class 1 and 3B Reporting Issuers - Participation Fee)

99.71

 

AB Form 13-501F1 (Class 1 and 3B Reporting Issuers - Participation Fee)

99.72

 

Form 52-109F1 dated March 17, 2021 (CEO)

99.73

 

Form 52-109F1 dated March 17, 2021 (CFO)

99.74

 

Press Release dated March 17, 2021

99.75

 

Press Release dated March 18, 2021

99.76

 

Consent of PricewaterhouseCoopers LLP

99.77

 

Consent of Porfírio Cabaleiro Rodriguez, BSc (Mine Eng.)

99.78

 

Consent of Leonardo Apparicio da Silva, BSc (Min Eng.), MSc (Met Eng.)

99.79

 

Consent of Fabio Valerio Xavier, BSc (Geol.)

99.80

 

Consent of Paul Sarjeant, B.Sc. P. Geo

 

9

Exhibit 99.1

 

GRAPHIC

 

PRESS RELEASE

January 14, 2020

 

Largo Resources Announces Record Quarterly and Full Year 2019 Production Results and Provides 2020 Guidance

 

·             Strong Q4 2019 operational finish: Production of 3,011 tonnes of V2O5 in Q4 2019, a 16% increase over Q4 2018

 

·             Record FY 2019 production, achieving midpoint production guidance: 10,577 tonnes (23.3 million lbs(1)) of V2O5 produced in 2019, an increase of 8% over FY 2018

 

·             Record monthly V2O5 production of 1,162 tonnes in December 2019

 

·             Maracás Menchen Mine expansion project completed in December 2019

 

·             New safety record: 238 days (1.5 million man-hours worked) without a Lost Time Injury

 

·             2020 Guidance: Annual V2O5 production of 11,750 — 12,250 tonnes; Average annual cash operating cost excluding royalties(2) of US$3.30 — 3.50/lb V2O5; Annual sales of 9,500 — 10,000 tonnes(5); Sustaining capital expenditures(6) of US$9 — 11 million; Ferrovanadium conversion plant capital expenditures of US$5 — 7 million

 

TORONTO — Largo Resources Ltd. (“Largo” or the “Company”) (TSX: LGO) (OTCQX: LGORF) is pleased to report fourth quarter and full year 2019 production results from its Maracás Menchen Mine highlighted by a new annual production record, with 10,577 tonnes of vanadium pentoxide (“V2O5”) produced. In 2019, the Company performed well operationally, achieving its annual midpoint production guidance of 10,500 tonnes of V2O5. Management is confident that it will be able to execute on its 2020 production and cost guidance building upon the Company’s operational successes achieved in FY 2019.

 

Total production from the Maracás Menchen Mine in FY 2019 was 10,577 tonnes of V2O5, representing an increase of 8% over FY 2018. The Company also produced 3,011 tonnes of V2O5 in Q4 2019, which is an increase of 16% over Q4 2018. Production in Q4 2019 represents the third consecutive quarter-over-quarter of production growth in 2019 and is the strongest quarter of production since commencement of operations in 2014. Increased production in Q3 2019 and Q4 2019 is largely due to the ramp-up and completion of the Company’s expansion project which concluded in December following the commissioning of the pre-evaporator and leaching, de-silication and precipitation tanks.

 

In Q4 2019, 329,792 tonnes of ore with an effective V2O5 grade(3) of 1.36% were mined and the crushing unit was fed with 311,148 tonnes with an effective V2O5 grade(3) of 1.20%. The Company also produced 100,879 tonnes of concentrate ore with an average V2O5 grade of 3.28% in Q4 2019 compared to 92,190 tonnes produced in Q4 2018 with a grade of 3.27%.

 

Global V2O5 recovery rates(4) averaged 78.5% in FY 2019 which is an improvement over the 77.0% averaged in FY 2018. In Q4 2019, global recoveries(4) averaged 77.3% which compares favourably to 75.3% averaged in Q4 2018. Global recoveries(4) declined quarter-over-quarter in 2019 primarily due to some process variability during the expansion ramp-up phase.

 

A summary of Q4 and FY 2019 production results from the Maracás Menchen Mine is presented below:

 

 

 

 

2019

 

2018

 

 

 

Q4

 

Q3

 

Q2

 

Q1

 

Full Year

 

Q4

 

Full Year

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Ore Mined (tonnes)

 

329,792

 

267,257

 

308,858

 

250,109

 

1,156,016

 

256,436

 

822,795

 

Ore Grade Mined - Effective Grade (%)(3)

 

1.36

 

1.52

 

1.21

 

1.29

 

1.34

 

1.33

 

1.30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective Grade of Ore Milled (%)(3)

 

1.57

 

1.44

 

1.49

 

1.51

 

1.50

 

1.53

 

1.68

 

Concentrate Produced (tonnes)

 

100,879

 

92,629

 

102,320

 

86,673

 

382,501

 

92,190

 

343,126

 

Grade of Concentrate (%)

 

3.28

 

3.26

 

3.30

 

3.32

 

3.29

 

3.27

 

3.41

 

Contained V2O5 (tonnes)

 

3,310

 

3,016

 

3,380

 

2,874

 

12,580

 

3,016

 

11,718

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crushing Recovery (%)

 

96.6

 

96.5

 

98.0

 

97.0

 

97.0

 

97.4

 

97.2

 

Milling Recovery (%)

 

96.0

 

97.0

 

97.9

 

96.8

 

96.9

 

97.9

 

96.9

 

Kiln Recovery (%)

 

89.7

 

88.8

 

88.8

 

89.2

 

89.1

 

84.3

 

86.6

 

Leaching Recovery (%)

 

96.7

 

97.2

 

95.7

 

97.7

 

96.8

 

96.5

 

97.2

 

Chemical Plant Recovery (%)

 

96.1

 

96.7

 

97.1

 

97.7

 

96.8

 

97.2

 

97.0

 

Global Recovery (%)(4)

 

77.3

 

78.1

 

79.1

 

80.0

 

78.5

 

75.3

 

77.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

V2O5 produced (tonnes)

 

3,011

 

2,952

 

2,515

 

2,099

 

10,577

 

2,595

 

9,830

 

V2O5 produced (equivalent pounds(1))

 

6,638,111

 

6,508,038

 

5,544,619

 

4,627,497

 

23,318,266

 

5,720,989

 

21,671,415

 

 

Paulo Misk, President and Chief Executive Officer of Largo, stated: “I am very pleased with the Company’s outstanding operational performance in 2019 further underscoring the dedication demonstrated by the whole Largo team. The Company experienced another solid year of production in 2019 following the successful completion of its expansion project which contributed to a new monthly V2O5 production record of 1,162 tonnes in December. Additionally, as a result of effective cost management, the Company expects its 2019 annual average cash operating cost excluding royalties(2) to be lower than its updated 2019 cash cost guidance range of US$3.30 to $3.40 per pound V2O5.”

 

He continued: “The Company also achieved a new safety record in 2019 operating 238 days (1.5 million man-hours worked) without a Lost Time Injury (LTI) surpassing its previous LTI safety record of 203 days (1.3 million man-hours worked). Safety remains a top priority at Largo and the Company plans to update the market with all of its responsible mining initiatives following the release of its 2019 environmental, social and governance report which is expected in Q1 2020. We look forward to another solid year in 2020 as we continue our focus on achieving operational targets in addition to advancing our sales and trading business. I remain extremely confident in our team as we continue this momentum in the year ahead.”

 

2020 Production, Cost and Sales Guidance

 

Building on the success of our increased name plate capacity in FY 2019, the Company expects total V2O5 production for 2020 will be in the range of 11,750 and 12,250 tonnes which is inclusive of high purity vanadium flake and high purity vanadium powder production. Additionally, the Company expects annual average cash operating cost excluding royalties(2) will be in the range of US$3.30 — 3.50/lb V2O5 in 2020 and anticipates sustaining capital expenditures(6) will be in the range of US$9.0 and $11.0 million.

 

Largo’s Board of Directors has approved the construction of a ferrovanadium conversion plant at the Maracás Menchen Mine subject to available liquidity. The Company expects the total capital expenditures for the conversion plant to be in the range of US$8.0 to $10.0 million, with US$5.0 to $7.0 million being incurred in 2020. In addition, the Company plans to perform cooler refractory maintenance in April 2020 and anticipates lower production during this month and higher cash operating costs in Q2 2020. The Company will also utilize this downtime to perform feed rate improvements on the kiln which is expected to increase the nameplate production

 

 

capacity to 1,100 tonnes of V2O5 per month from 1,000. In addition to the Company’s sustaining capital expenditures for 2020, the expected cost of the kiln feed rate improvement is approximately US$1.3 million.

 

Largo’s current offtake agreement with Glencore International AG expires on April 30, 2020 and the Company will be responsible for its own sales and distribution directly to end-users from May 2020 onwards. Consequently, the Company anticipates total sales in 2020 will be in the range of 9,500 to 10,000 tonnes, with approximately 2,000 to 2,500 tonnes of its total V2O5 production in 2020 forming part of inventory working capital due to shipping and delivery lead times. The Company’s expected total sales in 2020 will consist of V2O5, high purity V2O5, and ferrovanadium.

 

A summary of the Company’s 2020 guidance is listed in the table below:

 

2020 Guidance

 

 

Annual V2O5 Production Guidance

 

11,750 – 12,250 tonnes

Annual Sales Guidance(5)

 

9,500 – 10,000 tonnes

Average Annual Cash Operating Cost Guidance Per Pound Excluding Royalties(2)

 

US$3.30 – 3.50

Sustaining Capital Expenditures(6)

 

US$9.0 – 11.0 million

Ferrovanadium Conversion Plant Capital Expenditures

 

US$5.0 – 7.0 million

 

About Largo Resources

 

Largo is a Toronto-based strategic mineral company focused on the production of vanadium flake, high purity vanadium flake and high purity vanadium powder at the Maracás Menchen Mine located in Bahia State, Brazil. The Company’s common shares are principally listed on the Toronto Stock Exchange under the symbol “LGO”. For more information on Largo, please visit our website at www.largoresources.com.

 

For further information, please contact:

 

Alex Guthrie
Manager, Investor Relations and Communications
aguthrie@largoresources.com
Tel: +1 416-861-9797

 

Neither the Toronto Stock Exchange (nor its regulatory service provider) accepts responsibility for the adequacy or accuracy of this press release.

 

Forward-looking Information

 

This press release contains forward-looking information under Canadian securities legislation, some of which may be considered “financial outlook” for the purposes of applicable Canadian securities legislation (“forward-looking statements”). Information in this press release includes, but is not limited to, statements with respect the annual cash operating costs; ferrovanadium conversion plant and the costs associated therewith; the timing and amount of estimated future production; ; anticipated total sales of V2O5; cash costs of future activities and operations; and the extent of capital and operating expenditures.  Forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words

 

 

 and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. All information contained in this news release, other than statements of current and historical fact, is forward looking information. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Largo to be materially different from those expressed or implied by such forward-looking statements, including but not limited to those risks described in the annual information form of Largo and in its public documents filed on SEDAR from time to time. Forward-looking statements are based on the opinions and estimates of management as of the date such statements are made. Although management of Largo has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Largo does not undertake to update any forward-looking statements, except in accordance with applicable securities laws. Readers should also review the risks and uncertainties sections of Largo’s annual and interim MD&As.

 

Future Oriented Financial Information:

 

Any financial outlook or future oriented financial information contained in this press release, as such term is defined by applicable securities laws, has been approved by management of Largo as of the date hereof and is provided for the purpose of providing information about management’s current expectations and plans relating to the Company’s 2019 production guidance. Readers are cautioned that any such future oriented financial information contained herein should not be used for purposes other than those for which it is disclosed herein. The Company and its management believe that the prospective financial information as to the Company’s anticipated 2019 production guidance has been prepared on a reasonable basis, reflecting management’s best estimates and judgments. However, because this information is highly subjective, it should not be relied on as necessarily indicative of future results.

 

Non-GAAP Measures

 

The Company uses certain non-GAAP financial performance measures in its MD&A, which are described in the following section.

 

Cash Operating Costs

 

The Company’s press release refers to cash operating costs per pound produced, a non-GAAP performance measure, in order to provide investors with information about a key measure used by management to monitor performance. This information is used to assess how well the Maracás Menchen Mine is performing compared to plan and prior periods, and also to assess its overall effectiveness and efficiency.

 

Cash operating costs includes mine site operating costs such as mining costs, plant and maintenance costs, sustainability costs, mine and plant administration costs, royalties and sales, general and administrative costs, but excludes depreciation and amortization, share-based payments, foreign exchange gains or losses, commissions, reclamation, capital expenditures and exploration and evaluation costs.  These costs are then divided by the pounds of production from the Maracás Menchen Mine to arrive at the cash operating costs per pound produced.

 

The measure, along with revenues, is considered to be one of the key indicators of the Company’s ability to generate operating earnings and cash flow from its Maracás Menchen Mine. These cash operating costs do not have any standardized meaning prescribed by IFRS and differ from measures determined in accordance with IFRS. They are intended to provide additional information and should not be considered in isolation or as a substitute for measures

 

 

of performance prepared in accordance with IFRS. These measures are not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.

 

(1)  Conversion of tonnes to pounds, 1 tonne = 2,204.62 pounds or lbs.

(2)  The cash operating costs per pound produced and cash operating costs excluding royalties per pound produced reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this press release.

(3)  Effective grade represents the percentage of magnetic material mined multiplied by the percentage of V2O5 in the magnetic concentrate.

(4)  Global recovery is the product of crushing recovery, milling recovery, kiln recovery, leaching recovery and chemical plant recovery.

(5)  Inclusive of V2O5, high purity V2O5, and ferrovanadium.

(6)  Excludes capitalized waste stripping costs.

 

Exhibit 99.2

 

GRAPHIC

 

PRESS RELEASE

January 22, 2020

 

Largo Resources Launches VPURE and VPURE+ Vanadium Products

 

TORONTO — Largo Resources Ltd. (“Largo” or the “Company”) (TSX: LGO) (OTCQX: LGORF) is pleased to announce the launch of VPURE and VPURE+, newly developed brands for the Company’s industry preferred line of vanadium products.

 

Paulo Misk, President and Chief Executive Officer of Largo stated: “Largo’s vanadium products have an exceptional industry reputation worldwide. With our vanadium products now branded, new and existing customers can easily identify the Company’s products offered for purchase in the market. He continued: “The Maracás Menchen Mine has a proven track record of operational stability which allows the Company to provide its customers with a reliable source of vanadium supply. We look forward to becoming the industry preferred supplier of vanadium through the sale of our VPURE and VPURE+ products.”

 

Largo’s VPURE and VPURE+ products are sourced from one of the highest-grade vanadium deposits in the world using proven operational technology. A summary of Largo’s VPURE and VPURE+ products and associated specifications are listed below:

 

VPURE Flakes | Ferrovanadium powered by VPURE Flakes

 

·                  The VPURE brand consists of high-quality vanadium products which are mainly used to produce ferrovanadium and vanadium carbon nitride.

 

·                  VPURE Flakes have a guaranteed vanadium content of 98.5% and typical vanadium content of 99.0%.

 

·                  Ferrovanadium powered by VPURE Flakes achieves grade specifications in the range of 78.0% to 82.0% vanadium.

 

·                  Ferrovanadium powered by VPURE Flakes is essential in the production of steel products, which make up approximately 91% of global vanadium consumption.

 

VPURE+ Flakes | VPURE+ Powder

 

·                  The VPURE+ brand consists of high purity vanadium products in the form of flakes and powder.

 

·                  VPURE+ Flake and Powder products have a guaranteed vanadium content of 99.0% and a typical vanadium content of 99.5%.

 

·                  VPURE+ Flakes are mainly used in the production of master alloys.

 

·                  VPURE+ Powder is ideal to produce chemicals, catalysts and vanadium electrolyte used in the vanadium redox flow battery (VRFB).

 

To access additional information regarding the specification data sheets for VPURE and VPURE+ products, inquire about order purchasing or learn about the various end uses associated with vanadium, please visit www.largoVpure.com.

 

VPURE Ferrovanadium

 

The Company’s Board of Directors has approved the construction of a ferrovanadium conversion plant at the

 

 

Maracás Menchen Mine subject to available liquidity. The construction of the Company’s own ferrovanadium conversion plant creates downstream strategic advantages allowing Largo to supply ferrovanadium consumers directly. The ferrovanadium conversion plant construction and commissioning are expected to conclude in Q1 2021 at which point Largo anticipates introducing its own ferrovanadium product—VPURE Ferrovanadium—to the market.

 

About Largo Resources

 

Largo is a Toronto-based strategic mineral company focused on the production of vanadium flake, high purity vanadium flake and high purity vanadium powder at the Maracás Menchen Mine located in Bahia State, Brazil. The Company’s common shares are principally listed on the Toronto Stock Exchange under the symbol “LGO”. For more information on Largo, please visit our website at www.largoresources.com.

 

For further information, please contact:

 

Vanadium Sales

 

Paul Vollant
Director, Sales and Trading
sales@largoresources.com

Investor Relations & Media

 

Alex Guthrie
Manager, Investor Relations and Communications
aguthrie@largoresources.com
Tel: +1 416-861-9797

 

Neither the Toronto Stock Exchange (nor its regulatory service provider) accepts responsibility for the adequacy or accuracy of this press release.

 

Forward-looking Information:

 

This press release contains forward-looking information under Canadian securities legislation, some of which may be considered “financial outlook” for the purposes of application Canadian securities legislation (“forward-looking statements”). Forward-looking information in this press release includes, but is not limited to, statements with respect to Mr. Vollant joining the management team in September and to the expansion of the Company’s in-house sales and trading capacity. Forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. All information contained in this news release, other than statements of current and historical fact, is forward looking information. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Largo to be materially different from those expressed or implied by such forward-looking statements, including but not limited to those risks described in the annual information form of Largo and in its public documents filed on SEDAR from time to time. Forward-looking statements are based on the opinions and estimates of management as of the date such statements are made. Although management of Largo has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements

 

 

will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Largo does not undertake to update any forward-looking statements, except in accordance with applicable securities laws. Readers should also review the risks and uncertainties sections of Largo’s annual and interim MD&As which also apply.

 

Exhibit 99.3

 

GRAPHIC

 

PRESS RELEASE

February 11, 2020

 

Largo Resources to Release 2019 Annual Financial Results on March 20, 2020

 

·                  Shareholder conference call with Paulo Misk, President and CEO, Ernest Cleave, CFO and Paul Vollant, Director of Sales and Trading will be conducted at 10:00 a.m. EST on Monday, March 23, 2020.

 

TORONTO — Largo Resources Ltd. (“Largo” or the “Company”) (TSX: LGO) (OTCQX: LGORF) will release its 2019 audited annual financial results on Friday, March 20, 2020 after the close of market trading. Additionally, the Company will host a conference call to discuss 2019 operating and financial results on Monday, March 23 at 10:00 a.m. EST.

 

Details of the conference call are listed below:

 

Date:

Monday, March 23, 2020

Time:

10:00 a.m. EST

Dial-in Number:

Local / International: +1 (416) 764-8688

 

North American Toll Free: (888) 390-0546

 

Brazil Toll Free: 08007621359

Conference ID:

43872339

Replay Number:

Local / International: + 1 (416) 764-8677

 

North American Toll Free: (888) 390-0541

 

Replay Passcode: 872339#

Website:

To view press releases or any additional financial information, please visit the Investor Relations section of the Largo Resources website at: www.largoresources.com/investors

 

About Largo Resources

 

Largo Resources is an industry preferred producer and supplier of vanadium. Largo’s VPURE™ and VPURE+™ products are sourced from one of the world’s highest-grade vanadium deposits at the Maracás Menchen Mine located in Brazil. The Company’s common shares are principally listed on the Toronto Stock Exchange under the symbol “LGO”. For more information on Largo and VPURE™, please visit www.largoresources.com and www.largoVPURE.com.

 

For further information, please contact:

 

Alex Guthrie
Manager, Investor Relations and Communications
aguthrie@largoresources.com
Tel: +1 416-861-9797

 

Neither the Toronto Stock Exchange (nor its regulatory service provider) accepts responsibility for the adequacy or accuracy of this press release.

 

Exhibit 99.4

 

GRAPHIC

 

ANNUAL INFORMATION FORM

 

FOR THE YEAR ENDED DECEMBER 31, 2019

 

Dated March 16, 2020

 

 

 

TABLE OF CONTENTS

 

 

Page

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION

1

 

 

CAUTIONARY NOTE TO UNITED STATES INVESTORS

3

 

 

MARKET AND INDUSTRY DATA

3

 

 

OTHER INFORMATION

3

 

 

QUALIFIED PERSON

3

 

 

CURRENCY PRESENTATION AND DATE OF INFORMATION

4

 

 

CORPORATE STRUCTURE

5

 

 

GENERAL DEVELOPMENT OF THE BUSINESS

6

 

 

DESCRIPTION OF THE BUSINESS

8

 

 

RISK FACTORS

23

 

 

DIVIDENDS

42

 

 

DESCRIPTION OF CAPITAL STRUCTURE

42

 

 

MARKET FOR SECURITIES

43

 

 

DIRECTORS AND OFFICERS

43

 

 

AUDIT COMMITTEE DISCLOSURE

46

 

 

LEGAL PROCEEDINGS AND REGULATORY ACTIONS

48

 

 

INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS

48

 

 

TRANSFER AGENT AND REGISTRAR

48

 

 

MATERIAL CONTRACTS

49

 

 

INTERESTS OF EXPERTS

49

 

 

ADDITIONAL INFORMATION

49

 

 

SCHEDULE A - GLOSSARY

 

 

 

SCHEDULE B - AUDIT CHARTER

 

 

2020 ANNUAL INFORMATION FORM

 

i

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION

 

This annual information form (“AIF”), including documents incorporated by reference herein, contains “forward-looking information” and “forward-looking statements” within the meaning of applicable Canadian and United States securities laws (together, “forward-looking information”) concerning the Company’s projects, capital, anticipated financial performance, business prospects and strategies and other general matters. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those included in the forward-looking information. The use of words such as “intend”, “anticipate”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “should”, “believe” and similar expressions are intended to identify forward-looking information. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance are not statements of historical fact and may constitute forward-looking information. Statements relating to Mineral Resources are also forward-looking information, as they involve the implied assessment, based on certain estimates and assumptions that the Mineral Resources described can be profitably produced in the future. There is no certainty that it will be commercially viable to produce any portion of the Mineral Resources.

 

Forward-looking information includes statements with respect to:

 

·            the Company’s sales operations and anticipated sales of vanadium products;

 

·            the Company’s goals regarding development of its projects and further exploration and development of its properties;

 

·            the Company’s proposed plans for advancing its projects, and potential future exploration and development projects;

 

·            the Company’s expectations regarding the completion of, resulting production from, and anticipated benefits of, the Ferrovanadium Conversion Plant;

 

·            the Company’s expectations regarding the completion of, and resulting production from, the anticipated kiln feed rate improvements;

 

·            expectations regarding the continuity of mineral deposits;

 

·            future prices of V2O5;

 

·            future production at our Maracás Menchen Mine;

 

·            the results in the Technical Report including resource estimates;

 

·            expectations regarding any environmental issues that may affect planned or future exploration and development programs and the potential impact of complying with existing and proposed environmental laws and regulations;

 

·            receipt and timing of third party approvals;

 

·            government regulation of mineral exploration and development operations in Brazil;

 

·            expectations regarding any social or local community issues in Brazil that may affect planned or future exploration and development programs; and

 

·            statements in respect of V2O5 demand and supply.

 

These statements and information are only predictions based on current information and knowledge, some of which may be attributed to third party industry sources. Actual future events or results may differ materially. Undue reliance should not be placed on such forward-looking information, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. By its nature, forward-looking information involves numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking information will not be realized.

 

The following are some of the assumptions upon which forward-looking information is based:

 

·            that general business and economic conditions will not change in a material adverse manner;

 

·            demand for, and stable or improving price of, V2O5 and FeV;

 

·            that the Company will enter into agreements for the sales of vanadium products on favourable terms and for the sale of substantially all of its annual production capacity;

 

1

 

·            receipt of regulatory and governmental approvals, permits and renewals in a timely manner;

 

·            that the Company will not experience any material accident, labour dispute or failure of plant or equipment or other material disruption in the Company’s operations at the Maracás Menchen Mine;

 

·            the availability of financing for operations and development;

 

·            the Company’s ability to procure equipment and operating supplies in sufficient quantities and on a timely basis;

 

·            that the Company will have sufficient capital resources available for the build out of the Ferrovanadium Conversion Plant;

 

·            that the Ferrovanadium Conversion Plant will be completed on budget and in a reasonable timeframe;

 

·            that the Company’s expectations as to kiln feed rate improvements will be completed on time;

 

·            that the estimates of the Mineral Resources and Mineral Reserves at the Maracás Menchen Mine are within reasonable bounds of accuracy (including with respect to size, grade and recovery);

 

·            the Company’s ability to attract and retain skilled personnel and directors; and

 

·            the accuracy of the Company’s Mineral Reserves and Mineral Resource estimates (including size, grade and recoverability) and the geological, operational and price assumptions on which these are based.

 

Actual results could differ materially from those anticipated in this forward-looking information as a result of the risks and uncertainties including, without limitation:

 

·            volatility in prices of, and demand for, V2O5 or FeV;

 

·            risks inherent in mineral exploration and development;

 

·            uncertainties associated with estimating Mineral Resources and Mineral Reserves;

 

·            uncertainties related to title to the Company’s mineral projects;

 

·            revocation of government approvals;

 

·            tightening of the credit markets, global economic uncertainty and counterparty risk;

 

·            failure of plant, equipment or processes to operate as anticipated;

 

·            unexpected events and delays during construction and development;

 

·            competition for, among other things, capital and skilled personnel;

 

·            geological, technical and drilling problems;

 

·            fluctuations in foreign exchange or interest rates and stock market volatility;

 

·            rising costs of labour and equipment;

 

·            disruption caused by labour actions;

 

·            risks associated with political and/or economic instability in Brazil;

 

·            inherent uncertainties involved in the legal dispute resolution process, including in foreign jurisdictions;

 

·            changes in income tax and other laws of foreign jurisdictions; and

 

·            other factors discussed under “Risk Factors” in this AIF.

 

Assumptions relating to the potential mineralization of the Maracás Menchen Mine are discussed in the Technical Report which is available under the Company’s profile on SEDAR.

 

Additional risks and uncertainties not currently known to the Company, or that the Company currently deems to be immaterial, may also materially and adversely affect the Company’s business and prospects. Should one or more of these risks and uncertainties materialize, or should any of the underlying assumptions prove incorrect, actual results may vary materially from those described in forward-looking information.

 

Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking information, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. The reader is cautioned not to place undue reliance on forward-looking information.

 

The forward-looking information is presented for the purpose of assisting investors in understanding the Company’s plans, objectives and expectations in making an investment decision and may not be appropriate for other purposes. This forward-looking information is expressly qualified in its entirety by this cautionary statement. Forward-looking

 

2

 

information contained in this AIF or documents incorporated herein by reference are made as of the date of this AIF or the document incorporated herein by reference, as applicable, and are accordingly subject to change after such date. The Company disclaims any obligation to update any such forward-looking information to reflect events or circumstances after the date of such information, or to reflect the occurrence of anticipated or unanticipated events, except as required by law.

 

CAUTIONARY NOTE TO UNITED STATES INVESTORS

 

This AIF uses the terms “Measured”, “Indicated” and “Inferred” Mineral Resources. United States investors are advised that while such terms are recognized and required by Canadian regulations, the United States Securities and Exchange Commission does not recognize them. Inferred Mineral Resources have a great amount of uncertainty as to their existence, and as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies. United States investors are cautioned not to assume that all or any part of Measured or Indicated Mineral Resources will ever be converted into Mineral Reserves. United States investors are also cautioned not to assume that all or any part of an Inferred Mineral Resource exists, or is economically or legally mineable.

 

MARKET AND INDUSTRY DATA

 

Market and industry data contained and incorporated by reference in this AIF concerning economic and industry trends is based upon good faith estimates of our management or derived from information provided by industry sources. The Company believes that such market and industry data is accurate and that the sources from which it has been obtained are reliable. However, we cannot guarantee the accuracy of such information and we have not independently verified the assumptions upon which projections of future trends are based.

 

OTHER INFORMATION

 

In this annual information form, references to “Largo”, the “Company”, and “we” mean Largo Resources Ltd. and its subsidiaries as applicable (unless the context otherwise requires).

 

The disclosure in this AIF is supplemented throughout the year by, and is to be read in context with, subsequent continuous disclosure filings including news releases, material change reports, financial statements, management discussion and analysis and technical reports filed under NI 43-101. This AIF contains information which the Company believes, in context and in exercising its judgement, to be material. Information which the Company, in exercising its judgement, believes, in context, is not material (or, due to the passage of time, is no longer material), has not been included in this AIF.

 

QUALIFIED PERSON

 

Except as otherwise noted in this AIF, Mr. Paul Sarjeant, B.Sc. P. Geo is the Qualified Person (as that term is defined under NI 43-101) who has reviewed and approved the technical disclosure in this AIF. Mr. Sarjeant is the Manager, Geology of the Company. For a description of key assumptions, parameters and methods used to estimate Mineral Reserves and Resources, as well as data verification procedures and a general discussion of the extent to which the estimates may be affected by any known environmental, permitting, legal title, taxation, sociopolitical, marketing or other relevant factors, please see the Technical Report for our material property as filed by us on SEDAR at www.sedar.com

 

3

 

CURRENCY PRESENTATION AND DATE OF INFORMATION

 

This AIF contains references to Canadian dollars, United States, Brazilian reals and to the European Euro. All dollar amounts referenced herein, unless otherwise indicated, are expressed in Canadian dollars “$”. United States dollars may be referred to as “United States dollars” or “US$”. Brazilian reals may be referred to as “Brazilian reals” or “R$”, and the European Euro may be referred to as “Euro” or “€”.

 

The following tables set out the average annual exchange rates according to information published by the Bank of Canada and the resulting currency conversion if one US$, one Brazilian real and one € were exchanged for the equivalent in Canadian dollar(s).

 

 

 

Year Ended December 31

 

One US Dollar

 

2019

 

2018

 

2017

 

Closing in Cdn Dollar(s)

 

$

1.3269

 

$

1.2957

 

$

1.2986

 

 

 

 

Year Ended December 31

 

One Brazilian Real

 

2019

 

2018

 

2017

 

Closing in Cdn Dollar(s)

 

$

0.3371

 

$

0.3566

 

$

0.4071

 

 

 

 

Year Ended December 31

 

One Euro Dollar

 

2019

 

2018

 

2017

 

Closing in Cdn Dollar(s)

 

$

1.4856

 

$

1.5302

 

$

1.4560

 

 

Based on information published by the Bank of Canada, (i) the value of one US$, if exchanged for one Canadian dollar, would have been $1.3269 for the month of December of 2019, (ii) the value of one Brazilian real, if exchanged for one Canadian dollar, would have been $0.3371 for the month of December of 2019, and (iii) the value of one Euro dollar, if exchanged for one Canadian dollar, would have been $1.4856 for the month of December of 2019.

 

On March 16, 2020, the indicative exchange rate for Canadian dollars in terms of the United States dollar, as quoted by the Bank of Canada, was US$1.00 = C$1.3964, the exchange rate into R$, was 1 real = C$0.2810, and the exchange rate into €, was €1 = C$1.5574.

 

All information in this AIF is given as of December 31, 2019, unless otherwise indicated. The Company’s fiscal year end is December 31.

 

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CORPORATE STRUCTURE

 

Incorporation and Registered Office

 

Largo is a company continued under the Business Corporations Act (Ontario).

 

The Company was originally incorporated under the name Kaitone Holdings Ltd. in the province of British Columbia on April 18, 1988. On September 3, 1991, the Company changed its name to Consolidated Kaitone Holdings Ltd. On May 8, 2003, the Company changed its name to Largo Resources Ltd. On June 10, 2004, the Company continued to the Province of Ontario and filed articles of amendment to amend its authorized share capital to an unlimited number of Common Shares. On October 17, 2014, the Company completed a consolidation of its Common Shares on the basis of one (1) post-consolidation Common Share for each ten (10) pre-consolidation Common Shares.

 

The head office and registered office of the Company is located at 55 University Avenue, Suite 1105, Toronto, Ontario, Canada M5J 2H7.

 

Intercorporate Relationships

 

The following chart shows our principal subsidiaries, their jurisdiction of incorporation and the percentage of voting securities we beneficially own or over which we have control or direction:

 

 

Notes:

 

(1)   Under Brazilian law, a corporation must have at least two shareholders or quotaholders, as applicable. Shareholders or quotaholders, as applicable, can be individuals or legal entities. Accordingly, Mr. Paulo Guimaraes Misk, President of the Brazilian operations of the Company, holds an interest of <0.001% (101 shares) and <0.017% (2 quotas) in the capital stock of Mineração Currais Novos Ltda. and Campo Alegre de Lourdes Ltda., respectively.

 

(2)   The remaining shares of Vanádio are owned by Companhia Baiana de Pesquisa Mineral, an entity controlled by the Brazilian State of Bahia, see also “Description of the Business — Material Project - Maracás Menchen Mine - Project Description, Location and Access”.

 

(3)   Holds a 100% interest in the tungsten-molybdenum Northern Dancer Project in the Yukon, Canada.

 

(4)   Holds a 100% interest in the tungsten tailings Currais Novos Project, in Brazil.

 

(5)   Holds a 100% interest in the iron-vanadium Campo Alegre Project in Brazil.

 

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(6)   Holds a 100% interest in our Maraçãs Menchen Mine.

 

(7)   These entities facilitate the Company’s sales and distribution capabilities, see also “Description of the Business — Marketing and Distribution”.

 

GENERAL DEVELOPMENT OF THE BUSINESS

 

Largo is a Canadian natural resource development and exploration company listed on the TSX and OTCQB.

 

We are a strategic mineral company focused on the production of vanadium pentoxide (V2O5) at our Maracás Menchen Mine located in Bahia, Brazil, being the Company’s sole material project for the purposes of NI 43-101. The Maracás Menchen Mine is our principal operating asset and accounted for all of our revenues since commencing operations in 2014.

 

Vanadium is primarily used as an alloy to strengthen steel and reduce its weight. Vanadium enhanced steels are currently used in a vast range of products including, rebar, automobiles, transport infrastructure and is increasingly being adopted in other products and applications that demand stronger and lighter steel.

 

We also have a portfolio of secondary projects consisting of (i) the Campo Alegre de Lourdes project, an iron vanadium property in Bahia, Brazil, (ii) the Northern Dancer project, a tungsten and molybdenum property in Yukon, Canada, and (iii) Currais Novos, a tungsten project. As of the date of this AIF, none of these projects are operational, and we do not consider any of these projects to be material properties

 

Three Year History

 

The following is a summary of the general development of the Company’s business.

 

Equity Financings

 

In January 2017, the Company completed a non-brokered private placement offering (the “January 2017 Financing”) of an aggregate of 35,740,119 units at a price of $0.45 per unit for aggregate gross proceeds of approximately $16.1 million. Each unit was comprised of one Common Share and one warrant exercisable into one Common Share at a price of $0.65 per share for a period ending three years from the date of issuance. ARC Funds purchased 14,395,675 units and CIH acquired 10,450,000 units.

 

In December 2017, the Company completed a non-brokered private placement (the “December 2017 Financing”) of an aggregate of 35,985,749 units at a price of $0.82 per unit for aggregate gross proceeds of approximately $29.5 million (including the Banco Pine Debt Settlement, defined herein, see “General Development of the Business — Three Year History — Debt Facilities”. Each unit was comprised of one Common Share and one-half of one Common Share purchase warrant, with each whole warrant entitling the holder thereof to purchase one Common Share at a price of $1.15 per share for a period expiring five years from the date of issuance. Concurrent with the closing of the offering the Company completed the restructuring of its Pine Facility (defined herein) by converting its outstanding debt of US$5,991,687.51 into Common Shares (the “Banco Pine Debt Settlement”), see also “General Development of the Business — Three Year History — Debt Facilities”. Banco Pine S.A (“Banco Pine”) received 7,306,934 units in full and final satisfaction of its debt.

 

On July 24, 2018, the Company completed a secondary offering by way of short form prospectus of 69,000,000 Common Shares at a price of $1.40 per share.

 

On November 15, 2018, the Company amended the terms of all outstanding warrants issued in connection with the March 2016 Financing, October 2016 Financing, January 2017 Financing, December 2017 Financing, and the Bridge Loan, permitting the cashless exercise of all such warrants. To date, 21,180,324 warrants have been exercised on a cashless basis.

 

On February 6, 2019, the Company filed a base shelf prospectus qualifying the distribution of up to $750 million of securities of the Company.

 

6

 

Senior Secured Notes

 

On May 22, 2018, the Company completed a note offering of US$150.0 million (the “Note Offering”) in aggregate principal amount of 9.25% senior secured notes due in 2021 (the “Notes”). The Company completed the Note Offering in order to simplify its existing debt capital structure and to eliminate a covenant under its 2017 Facility which restricts the movement of funds from the Company’s operating entity, Vanádio, to the Canadian parent. On August 2, 2018, proceeds from the Note Offering were used to repay US$144.1 million owing under the BNDES Facilities.

 

Between September 2018 and July 2019, the Company repurchased and retired all outstanding Notes at redemption prices ranging between 103% and 105.625% of the principal amount of the Notes, plus accrued and unpaid interest due on the Notes. The final payment for the redemption of all outstanding Notes was made on July 7, 2019.

 

Debt Facilities

 

In December 2016, the Company entered into definitive agreements with the Banks for a new debt facility (the “2017 Facility”) and the restructuring of its existing facilities with the Banks related to its Maracás Menchen Mine. The 2017 Facility provided the Company with a working capital facility of up to R$140 million to be used for the payment of principal and interest falling due during 2017 on the existing loan from the BNDES Facility as well as principal and interest falling due during 2017 on the existing debt facilities.

 

On February 24, 2017, the Company agreed to a new schedule of payments for its Pine Facility and in connection therewith, the Company was required to pay a restructuring fee of US$100 million through the delivery of 263,157 common shares of the Company which was satisfied in March 2017.

 

Also in April 2017, the Company announced that it had entered into a US$2 million six-month term loan with a shareholder of the Company (the “Bridge Loan”). Pursuant to the terms of the Bridge Loan, the Company issued 400,000 Common Share purchase warrants to the lender with each such warrant being exercisable to acquire one Common Share at a price of $0.50 per share until December 31, 2020. The loan was repaid in December 2017.

 

On April 4, 2018, the Company along with its operating subsidiary, Vanádio, completed a restructuring and conversion of Vanádio’s Pine Facility. As a result of the restructuring, approximately US$9.0 million of debt owed by Vanádio was paid down with the remaining balance being restructured for payment over approximately 6.5 years. This restructuring resulted in the complete restructuring of the Company and Vanádio’s previously existing debt facilities with the Banco Pine.

 

On August 2, 2018, proceeds from the Note Offering were used to repay all outstanding amounts owing under the BNDES Facility.

 

On September 27, 2018, Vanádio completed the repayment in full to Banco Pine of its outstanding debt of approximately $22.9 million.

 

Operations

 

In October 2017, the Company announced the result of the Technical Report containing a Life of Mine Plan for the Maracás Menchen Mine, a feasibility study for the Campbell Pit at the Maracás Menchen Mine and a PEA for Gulçari A Norte, Gulçari B, Novo Amparo, Novo Amparo Norte, Campbell in pit resources and São José Near Mine Targets at the Maracás Menchen Mine. For more information see “Description of the Business — Material Project — Maracás Menchen Mine”.

 

On October 5, 2018, INEMA renewed the Company’s operating license for the Maracás Menchen Mine. The renewed operating license is valid for a period of two years, and may be further extended within six months of the operating license’s new expiry date for an additional period of between two and five years.

 

On November 2, 2018, INEMA published the Company’s environmental license for the Expansion of the Maracás Menchen Mine.

 

7

 

On December 19, 2018, the Company reported on 20 of 24 NQ diamond drill holes that it had drilled at its Novo Amparo Norte deposit in 2018 as part of a second phase drill program, see “Description of the Business — Exploration, Development, and Production”.

 

On June 11, 2019, the Company announced the results of its 2019 exploration program returning a significant increase to the overall resource bases at its Novo Amparo Norte deposit in Maracás, Brazil. The exploration program resulted in the conversion of Inferred Mineral Resources to Measured and Indicated categories, in addition to increasing the overall Inferred Mineral Resources. See “Description of the Business — Material Projects — Exploration, Development, and Production”.

 

On June 19, 2019, the Company announced that, effective September 2019, Mr. Paul Vollant would be joining as Director of Sales and Trading with Largo Commodities Trading Limited (“Largo Ireland”). Mr. Vollant is tasked with leading the development of the Company’s sales and trading business and building out the Company’s presence in the global vanadium market.

 

On August 20, 2019, the Company provided notice to Glencore International AG of the nonrenewal of its Offtake Agreement, terminating effective April 30, 2020, see “Description of the Business — Marketing and Distribution”.

 

On September 8, 2019, Paulo Misk, formerly Chief Operating Officer of the Company, was promoted to President and Chief Executive Officer, replacing the vacancy created by Mr. Mark Smith’s departure from the Company. Concurrently, Mr. Alberto Arias was named non-executive Chairman of the Company’s Board of Directors.

 

On October 21, 2019, Mr. Francesco D’Alessio joined Largo Resources USA Inc. (“Largo USA”) as Head of Sales, Americas. Mr. D’Alessio will be supporting the Company’s vanadium sales and trading business with a particular focus on North and South American markets.

 

On November 13, 2019, the Company approved the construction of a ferrovanadium conversion plant at the Maracás Menchen Mine (the “Ferrovanadium Conversion Plant”) which is estimated to be completed in Q1 2021. Ferrovanadium is essential in the production of steel products, which make up approximately 91% of global vanadium consumption. When complete, the Ferrovanadium Conversion Plant is anticipated to create downstream advantages as it vertically integrates the conversion of the Company’s V2O5, eliminating third party convertors, and will enable the Company to supply ferrovanadium consumers directly.

 

In December, 2019, the Company completed the Expansion of the Maracás Menchen Mine.

 

On January 22, 2020, the Company announced the launch of VPURE and VPURE+, newly developed brands for the Company’s industry preferred line of vanadium products.

 

DESCRIPTION OF THE BUSINESS

 

General

 

Largo is a Canadian natural resource company listed on the TSX and OTCQX and focused on the production of VPURE Flake, VPURE+ Flake and VPURE+ Powder. Our principal operating asset is the Maracás Menchen Mine located in Bahia, Brazil, which accounted for all of our revenues since it commenced operations in 2014. According to the Technical Report, effective as of May 2, 2017, the Maracás Menchen Mine had one of the world’s highest-grade vanadium deposits with Proven Mineral Reserves of 17.57 million tonnes at an average grade of 1.14% V2O5 and Probable Mineral Reserves of 1.44 million tonnes with an average grade of 1.26% V2O5. On November 2, 2018, INEMA published the Company’s environmental license for the Expansion of the Maracás Menchen Mine, and the Company completed the Expansion in December 2019. The Maracás Menchen Mine produces V2O5 products and effective as of May 2, 2017 had a current mine life of over 10 years, based on its Proven Mineral Reserves and Probable Mineral Reserves as set forth in the Technical Report.

 

8

 

We are currently one of the lowest cost producers of V2O5 in the world due to the characteristics of the Maracás Menchen Mine’s ore body and our operating efficiency. In August 2019 the Company gave notice of its intention to terminate the Offtake Agreement with Glencore International AG, effective April 30, 2020. As a result, starting on May 1, 2020, Glencore will not be obligated to purchase any vanadium products from the Maracás Menchen Mine. The Company has established a team of sales professionals to lead global sales of the Company’s vanadium products, see “General Development of the Business — Three Year History — Operations”, and “Description of the Business — Marketing and Distribution”.

 

In November, 2019, the Company approved the construction of the Ferrovanadium Conversion Plant which is estimated to be completed in Q1 2021. The completion of the Ferrovanadium Conversion Plant is anticipated to create downstream advantages for the Company as it will vertically integrate the conversion of the Company’s V2O5, eliminating third party convertors, and enabling the Company to supply ferrovanadium consumers directly, see “General Development of the Business — Three Year History — Operations”.

 

We also have a portfolio of secondary projects consisting of (i) the Campo Alegre de Lourdes project, an iron vanadium property in Bahia, Brazil, (ii) the Northern Dancer project, a tungsten and molybdenum property in Yukon, Canada and (iii) Currais Novos, a tungsten project. As of the date of this AIF, none of these projects are operational and we do not consider any of these projects to be material properties

 

The Vanadium Industry

 

Vanadium is a naturally-occurring, silvery-grey element with an atomic number of 23. It is not typically found as a free-form element in nature, but rather exists in an oxidation state as part of mineral deposits, including vanadinite, carnotite and magnetite ores, or within fossil fuels. Vanadium is harder than most metals, while retaining malleable and ductile features, and is corrosion-resistant to various chemicals, including alkalis, hydrochloric and sulfuric acids and salt water. Vanadium also has high melting and boiling points of 1910°C and 3407°C, respectively, enabling it to retain its solid form in a variety of external conditions.

 

These key properties make vanadium ideal for use in metal and steel alloying as it helps reinforce the level of strength, toughness and heat and chemical resistance required for various industry applications such as construction, aerospace and automobiles.

 

Vanadium consumption is dominated by its use in steel applications, which, as of 2019, is estimated to account for approximately 91% of total global consumption. Within this application, the use of vanadium can be further distinguished between the use of vanadium in high-strength low-alloy (“HSLA”) steel, full alloy steel, carbon steel and other steels. HSLAs include small amounts of vanadium, niobium or titanium, or a combination of these microalloying elements, to induce higher strength and a finer-grained structure. The higher strength enables the use of smaller quantities of raw materials in many applications. HSLAs are considered to be a strong substitute for carbon manganese steel which has lower tensile strength.

 

The balance of global vanadium consumption, approximately 9% in total, is used for aerospace alloys, chemical catalysts and other specialty applications such as renewable energy. These industries and applications most often require high purity vanadium which command premium pricing.

 

Vanadium Demand Drivers

 

Reinforcing Steel Bars

 

In the construction industry, vanadium is used to achieve a certain level of tensile strength in reinforcing bars (“rebar”) and other steel components used in the construction of bridges, tunnels and buildings. Historically, a significant portion of vanadium demand had been driven by “Grade-3” rebar standards in the western world. This end market experienced significant growth starting in 2004 when China adopted “Grade-3” rebar standards aimed at improving structural performance during seismic events. However, in recent years, demand in this application in China has been degraded by the illegal utilization of the quench and temper method (the “Q&T method”), which allows the steel to meet the “Grade 3” tensile strength requirements but not the critical elongation requirements that assure good performance in seismic

 

9

 

activity. However, China has recently responded to this trend and is aiming to prevent the use of the Q&T method through the introduction of new rebar specifications made effective November 1, 2018 that cannot be achieved with the Q&T method. This is currently causing Chinese producers of rebar to revert back to employing the use of vanadium alloyed steels. The revised standard also eliminates grade 2 rebar which is lower strength and can be produced without any microalloy.

 

Shifts in consumer preferences and government fuel efficiency standards requiring more fuel-efficient vehicles are encouraging automobile manufacturers to adopt HSLA steel in automotive applications. Vanadium-containing HSLAs and other high-strength steels provide the desirable physical properties required to meet crucial automotive standards, including stiffness, crash performance and forming characteristics, while remaining competitive with other lightweight alternatives, such as carbon fiber reinforced polymers. We anticipate this optimal cost-weight-strength ratio will drive vanadium demand in automotive end market uses.

 

High Performance Alloys

 

Vanadium is also used in the production of high performance alloys, specifically titanium alloys primarily used in the aerospace industry. Titanium-vanadium alloys’ low density, high strength and excellent fatigue properties make it a key input to aerospace engines, gas turbines and airframes. Titanium-vanadium alloys accounted for approximately 2.5% of global vanadium consumption in 2019 and are expected to continue growing as major manufacturers seek to meet their delivery schedules and maintain stringent industry specifications.

 

Energy Storage Systems

 

Over the long-term, we expect new applications to drive incremental demand for vanadium use, especially certain specialty applications that demand high-purity vanadium content. While these sources of demand account for a limited amount of existing consumption, we expect the ongoing development and maturation of certain technologies to spur additional long-term demand for vanadium outside of consumption in steel. Global climate change trends are encouraging the research and implementation of large energy storage systems to support renewable energy sources. Vanadium redox flow batteries, which use vanadium ions in different oxidation states to store potential chemical energy, are considered to be a cost-competitive alternative to lithium ion technology for large-scale, long duration energy storage. We believe our high-purity products are well-positioned to take advantage of these quickly growing end markets.

 

Vanadium Supply Trends

 

Vanadium supply dynamics are primarily driven by both the nature of production methods and the location of vanadium sources. Because vanadium exists naturally in an oxidized form, it is typically derived from the processing of vanadium-bearing ores, slag or residues and then converted into an intermediate vanadium oxide product. The majority of vanadium is extracted from vanadium-bearing slag, a by-product of the steel making process in regions where vanadium titanium magnetite (“VTM”) deposits are present. VTM ores are processed in steel mills, with the vanadium-bearing slag subsequently processed for vanadium extraction. Due to its by-product nature, vanadium supply from steel production is generally price-inelastic with supply driven by underlying trends in the steel industry and competitiveness of the specific iron ore mines and steel mills utilizing VTM ore, rather than by output from primary mining operations. For example, significant growth in steel production in China from 2004 to 2014 resulted in an eightfold increase in vanadium slag production derived from steel making. In 2019, steel mills in China, Russia and New Zealand supplied approximately 70% of vanadium through their slag by-product.

 

The cost competitiveness of these sources is greatly influenced by the initial cost of the primary products, rather than the cost of extracting vanadium from the slag. This has meaningful implications on slag-sourced vanadium globally. While Chinese and Russian steel mills are the major sources of vanadium as a by-product from steel production, these sources are becoming less competitive in the global steel market since the locally sourced VTM ores used in these steel mills are typically high in titanium and low in iron. In particular, the uneconomic nature of these select VTM ores relative to seaborne iron ores that do not contain vanadium has led to diminished use of VTM ores in steel production at some vanadium producing mills. This has in turn led to a meaningful reduction in supply of vanadium from slag. Examples of such significant shutdowns include the liquidation of the Mapochs Mine following closure of Highveld Steel and Vanchem

 

10

 

Vanadium Products in South Africa and discontinuation of the use of VTM ore at the Jianlong Steel Group’s Heilongjiang steel mill. The continued growth in Chinese seaborne iron ore imports (which contain no vanadium) partially replacing locally mined VTM ore is expected to further limit vanadium supply from slag processing.

 

The next largest source of vanadium supply is from mining operations where vanadium is the primary commodity produced. Primary producers based in South Africa, Brazil and China extract vanadium directly from VTM ores, which accounts for 18% of supply. Because these projects are not associated with any steel processing, their relative cost competitiveness is largely influenced by mine-specific factors, most importantly ore grade. Primary production of vanadium in China is sourced from a carbonaceous shale known as stone coal, which contains a relatively low grade of 0.2% to 1.0% of vanadium. The Company’s Maracás Menchen Mine is one of only three large-scale primary vanadium mines globally.

 

The remainder of global vanadium supply is derived from secondary vanadium sources. Secondary sources, on the other hand, derive vanadium from residues, ashes and spent catalysts that are a by-product of the burning or refining of vanadium-bearing carboniferous materials, including coal and oils. Similar to vanadium produced in the steel making process, the economic viability of these secondary sources depends largely on the underlying trends in the markets for other materials.

 

Owing to the inexpensive, but highly constrained quantity of vanadium supply from the steel making processes, and the challenging and often expensive processes of sourcing vanadium from primary and secondary sources, the cost curve is less responsive to changes in demand levels.

 

New primary sources of vanadium are expected to be relatively limited in the next few years due to the limited number, and stage of advancement of, projects expected to come online.

 

Vanadium Prices

 

According to the London Metal Bulletin, as of March 13, 2020, V2O5 was trading in the range of US$4.80 to US$5.50 per pound of V2O5, and as of December 27, 2019 was trading in the range of US$4.80 to US$5.85 per pound V2O5. The price of V2O5 decreased materially in 2019, starting the year at US$15.50 to US$16.50 per pound V2O5 before falling almost continuously until the end of the year when it bottomed out. From January 2020 to March 2020, the price of V2O5 has experienced volatility and any gains realized over the period have been tempered by fears of a global economic slowdown from the COVID-19 pandemic, see “Risk Factors — Risks Related to the Business and Operations”.

 

Material Project  - Maracás Menchen Mine

 

Technical Report

 

At present, the only material project of the Company for the purposes of NI 43-101 is the Maracás Menchen Mine and the primary focus of the Company is to continue to meet and exceed nameplate capacity at the Maracás Menchen Mine on a consistent and continued basis.

 

A report entitled “An Updated Mine Plan, Mineral Reserve and Preliminary Economic Assessment of the Inferred Resources” and issued on October 26, 2017 and effective as of May 2, 2017 (the “Technical Report”) was prepared for the Company by GE21. The Technical Report is available under the Company’s profile on SEDAR at www.sedar.com and on the Company’s website at www.largoresources.com.

 

The following information is based, in part, on Technical Report. Non-material updates since the date of the Technical Report are based on the Company’s previously filed financial statements and MD&As. The entire Technical Report is incorporated by reference herein, and readers are encouraged to review the complete text of the Technical Report. A full list of references cited by the authors are contained in the Technical Report. Porfírio Cabaleiro Rodriguez, Mining Engineer, BSc (Mine Eng), MAIG employed by GE21, Leonardo Apparicio da Silva, Mining Engineer, BSc (Min Eng), MSc (Met Eng), MAIG associated to GE21, and Fabio Valerio Xavier, Geologist, BSc, Geol, MAIG associated to GE21, are the Qualified Persons as defined in NI 43-101 responsible for the Technical Report and are all independent of the Company.

 

11

 

The Technical Report is intended to be read as a whole, and sections should not be read or relied upon out of context. The Technical Report contains the expression of the professional opinions of a Qualified Person (as defined under NI 43-101) based upon information available at the time of preparation of the Technical Report. The following disclosure, which is extracted in part from the Technical Report, is subject to the assumptions and qualifications contained in the Technical Report.

 

Project Description, Location and Access

 

The Maracás Menchen Mine is a high-grade, open pit vanadium mine located in the state of Bahia, Brazil that began producing V2O5 flake in the third quarter of 2014. The mine produces V2O5 rich ore which is sent to an on-site processing plant which produced 10,577 tonnes of V2O5 flake in 2019.

 

The Maracás Menchen Mine is located within the greater municipality of Maracás in the eastern Bahia State Brazil and lies approximately 250 km southwest of the city of Salvador, the capital of Bahia. Access to the Maracás Menchen Mine is via paved secondary road from the main coastal highway to the town of Maracás (350 km) and then a further 50 km via secondary highway and gravel road to the mine site. Access to water, the electrical power grid and railroad is within reasonable distance, and a trained workforce and local unskilled labour is available within the State of Bahia, the country of Brazil and the town of Maracás.

 

The property consists of eighteen (18) concessions totalling 17,690.5 hectares, and all of the permits are owned 100% by Vanádio de Maracás S.A. (“Vanádio”), which is controlled 99.94% directly and indirectly by Largo. Of this total, Vanádio controls two Mining permits of 1,000 hectares each, and one exploration permit (977.20 hectares). Largo controls the remaining fourteen exploration permits and final mining permit (1,713.88 hectares). All concessions are in good standing and there are no underlying royalty payments to any private entities. Companhia Baiana de Pesquisa Mineral (“CBPM”), an entity owned by the Bahia State Geological Survey, owns the underlying minerals rights to most of the project area, with the exception of Novo Amparo Norte (“NAN”) which is owned by Vanádio. Under an agreement, CBPM retains a 3% royalty on gross sales revenue for all of the concessions with the exception of NAN. The property is also subject to a royalty of 2% on certain operating costs under the Brazilian Mining Act and, under a separate agreement, Anglo Pacific PLC receives a 2% net smelter royalty in the Maracás Menchen Mine. Otherwise, the concessions are free and clear of mortgages, encumbrances, prohibitions, injunctions and litigation.

 

Exploration licences are granted by the National Mining Agency (“ANM”) based on an improved plan for a period of one to three years, with an option to extend for an additional three years. Annual fees of R$3.29 per hectare are paid on the first term and R$5.00 per hectare are paid on the second term. Once the exploration plan is completed, the licensee must submit a final exploration report and if the report is approved, they have up to one year to apply for an extraction licence. Once ANM has approved the final report carried out under the exploration licence the applicant moves to an extraction licence application. The extraction licence describes the details of an economic analysis of the project including environmental impacts, methods of operation and a plan for mine closure. Once approved by the ANM, exploitation permits are granted. Royalties are then payable to the government on products mined.

 

Largo reports that, to its knowledge, there are no existing permitting, environmental liabilities or other significant factors that would affect title or access with respect to the Maracás Menchen Mine.

 

History

 

Over the past 30 years, the Maracás Project has undergone several phases of exploration and economic evaluation, including geophysical surveys, prospecting, trenching, diamond drilling programs, geological studies, resource estimates, petrographic studies, metallurgical studies, mining studies and economic analyses. These studies have advanced the Maracás Project to its present status of an operating mine.

 

Exploration of the Rio Jacaré Sill by geologists of the CBPM initiated in 1980 during a regional geological survey and resulted in the discovery of vanadium-rich titaniferous magnetite occurrences on what is now the Maracás Menchen Mine. Additional geological mapping, geochemistry, geochemical surveying, pitting, trenching and limited drilling was completed by CBPM.

 

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In 1984 the Bahia State Geological Survey (“CBPM”) formed a joint venture with the Odebrecht Group (“Odebrecht”) who took over exploration of the project area and over the subsequent six years completed extensive geological and technical work. This work resulted in Odebrecht owning 93% of the project. In the early 1990’s Odebrecht formed a 50/50 joint venture with CAEMI (Vale) with the intent of bringing additional mining, metallurgical and marketing expertise to help advance the project. Substantial work including diamond drilling, metallurgical studies, resource calculations and mine planning were carried out and numerous prefeasibility, feasibility and marketing studies were completed culminating in a 1999 Economic Update Report. In 2006, Largo (through Vanádio) signed an option agreement with Odebrecht and Vale for the Maracás Project giving Largo the right to acquire a 90% interest in the project. In 2012, largo exercised the option and acquired the interests of both Odebrecht and Vale resulting in Vanádio owing 99.94% of the Maracás Project. Since the acquisition Largo has completed additional detailed engineering work and began construction of the Maracás Menchen Mine in June 2012. The Maracás Menchen Mine was commissioned March 2014 and production has steadily increased from 5,810 t/a in 2015 to a record 10,577 t/a in 2019.

 

Geological Setting, Mineralization, and Deposit Types

 

The Rio Jacaré Sill (the “RJS”) is a mafic-ultramafic intrusion, which hosts the Maracás Project vanadium mineralization, is located in the south-central part of Bahia state in northeastern Brazil. It lies within the Archean São Francisco craton, which in this area is composed of the Contendas-Mirante Complex and the Gavião and Jequié blocks. The RJS is located on the eastern edge of the Contendas-Mirante supracrustal sequence, which forms a large anticlinorium trending approximately north-south. The supracrustal rocks are located between the early Archean Gavião block to the west, which is composed predominantly of tonalite-trondhjemite granodiorite, and the Archean Jequié block to the east, which is composed predominantly of charnockite and enderbite intrusive rocks with strong calc-alkaline affinities and granulite facies metamorphic rocks. The Contendas-Mirante sequence is thought to be younger than the adjacent Gavião and Jequié blocks and consists of an Archean basal volcanic unit overlain by a Paleoproterozoic member containing flysch and metavolcanic rocks that are overlain by a clastic member.

 

The RJS is composed mainly of gabbro. The intrusion has been described previously as a sill intruded into the volcanic rocks of the lower unit of the Contendas-Mirante gneissic complex. However, the RJS is fault bounded to the east and west, and therefore, its contacts with both the Contendas-Mirante sequence and Jequié block are tectonic.

 

The RJS is a linear, sheet-like structure that strikes N 20o E and dips approximately 70o  to the east. The intrusion has been identified over a length of 70 km and has an average width of 1.2 km. The Campbell Pit contains the largest concentrations of vanadium-rich magnetite known on the property to date. This deposit crops out over an area of approximately 400 m along strike, up to 150 m width and is known to extend to approximately 350 m vertical depth, where it remains open. The Campbell Pit has been disrupted by northwest-southeast faulting. It is composed of magnetite grading into magnetite-rich pyroxenite, pyroxenite, and then gabbro which contains layers or lenses of magnetite-bearing pyroxenite that are sometimes sheared. The main magnetite body is on average about 25 m thick and thins to the south.

 

Within the Maracás Project the RJS can be traced for the full 8 km underlying the exploration permits north of the Campbell Pit.  Six known VTM deposits including the Campbell Pit, Gulçari A Norte and Gulçari B (collectively “GAN”), São José (“SJO”), Novo Amparo (“NAO”) and NAN, (collectively the “Near Mine Targets” or “NMT”, also referred to as ‘Satellite Deposites’ in the Technical Report) have been identified within the intrusion. The RJS can be traced a further +25 kilometers south of the Campbell Pit and Largo controls much of this area with additional exploration permits.

 

The NMT consist of magnetite closely associated with pyroxenite layers and hosted in gabbro. The magnetite layers have widths between <5 to+ 13 m and lengths of up to 250 m, with the layers being locally truncated or offset by faulting .

 

Sulphides account for up to 1% of the rock in the magnetite. The major phases are chalcopyrite and pentlandite with only very minor pyrite and pyrrhotite. High platinum and palladium (“PGM”) values have been found in the magnetite zones in the RJS. The association of PGM enrichment with magnetite layers in the RJS has similarities with the Rincón del Tigre, Skaergaard and Stella Complexes as well as the Bushveld Complex

 

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Exploration

 

Ongoing exploration is conducted on the Near Mine Targets with the primary goal of supporting mining activities and increasing estimated Mineral Resources and Mineral Reserves available for mining. All existing exploration information is being compiled into a comprehensive 3D model to allow for evaluation and prioritization of exploration efforts.

 

Beginning in 2007, Largo carried out significant geological work and interpretation over the project area. The entire property has been covered by 175 line-km of line cutting. The grid lines are 2.5 km long and oriented east-west with 100-m line spacing and 25-m stations along the lines. This line cutting work was done to facilitate geological mapping, sampling and ground geophysical surveys (magnetic and induced polarization). Geological mapping was done at a scale of 1:2,500 over the entire property concentrating on favourable areas that had a limited amount of information. This work was completed to get a better understanding of the area’s potential prior to conducting further drill testing.

 

Ground magnetic surveying (175 line -km) was completed over the entire property and total of 136 line-km of induced polarization surveying was completed on the property to help define magnetic horizons within the RJS. Geophysical surveys were important during the early of work to define targets for future drilling.

 

Data compilation, re-logging and additional resampling of previously drilled holes (1981 to 1986) were undertaken. This work was done to correlate the lithologies between holes and from section to section, and to test the platinum and palladium potential of the deposit to better understand the geological setting.

 

Exploration has resulted in significant opportunity to advance the Near Mine Targets to host Mineral Resource estimates in support of the overall mine complex and long-term mine planning.

 

Drilling

 

Mineral Resources and Reserves are estimated based on information from surface drill holes. Prior to Largo’s activity at the Maracás Project, previous operators had drilled 53 diamond drill holes (5,153 m) on the Campbell Pit, and 13 diamond drill holes (661 m) on targets within the overall mine property. Largo completed three exploration drill campaigns at the Maracás Project (2007, 2008 and 2011-2012) with 56 drill holes (14,525 m) directed at the Campbell Pit and 84 drill holes (15,058 meters) targeting other deposits within the mine property. Between September 2012 and January 2013, Largo completed an infill drill program consisting of 103 vertical drill holes (3,929.35 meters) at the Campbell Pit. The program was designed to further identify and delineate the first 2 to 3 years of mining at the Campbell Pit. Holes were spaced on 12.5 m centers and encompassed an area of about 300 m by 150 m.

 

For additional information on more recent drilling carried out on NAN see “Description of the Business — Exploration, Development and Production”.

 

Sampling, Analysis, and Data verification

 

Several periods of diamond drill by different operators have resulted in somewhat varying sampling procedures. The actual sampling method carried out by CBPM (1981 and 1983) is not known, but during visits to the core facility it was observed that the core had been carefully half cut with all holes available for inspection. Clearly marked sample intervals were evident in all core boxes and it was concluded that sampling had been carried out in a very professional manner.

 

Drill core sampling during the Odebrecht period was also completed to industry standards and half sawn core was carefully logged and sampled. Sampled core was secured and shipped via commercial trucks to the laboratory at SGS GEOSOL Laboratorios Ltda. (“SGS”) (1983-1987) and Paulo Abib Engenharia S.A. laboratory (1985 to 1987) both located in Belo Horizonte. In total, 1,675 core samples were analysed at SGS and Paulo Abib Engenharia. Samples were analysed for FeO, Fe2O3, SiO2, TiO2 and V2O5.

 

In 2006 and 2007, Largo undertook an extensive program of core relogging and sampling. Largo personnel collected quarter cut drill core samples which were then placed into sealed in plastic bags with corresponding sample tags. Samples were shipped via company truck to Salvador where they were handed over to a commercial trucking company

 

14

 

for shipment to SGS in Belo Horizonte. Analytical quality control utilized by Largo included the insertion of blanks, referenced material samples and duplicates on a regular basis for all batches submitted for analysis. CBPM and Odebrecht sample pulps remain available to Largo.

 

All sample preparation and analysis of drill core from the 2006/2007 resampling program and all Largo directed drill programs were performed by SGS in Belo Horizonte, Brazil and Lakefield Ontario, Canada. During infill drilling at the Campbell Pit in 2012 both SGS in Belo Horizonte and Intertek in Cotia, Brazil were used for sample preparation and analysis. Samples were analysed for FeO, Fe2O3, SiO2, TiO2 and V2O5 by the XRF method and for platinum and palladium by 50 g fires assay at SGS. This was modified to a 20 g fire assay for the 2007 and later drill programs. SGS “complies with the requirements of the international standards ISO 9001:2000 and ISO 14001:2004 for chemical analysis and geochemistry of soils, rocks and ores” (SGS Minerals, 2006). Intertek also complies with ISO 9001:2008 for chemical analysis and geochemistry of soils, rocks and ores.

 

In 2015 Largo staff initiated Davis Tube test work to improve their understanding of vanadium in the ore at the Campbell Pit. This work was used to determine the magnetic percentage and the SiO2 and V2O5 grades in the magnetite concentrate. This work was completed by SGS. In total, 7,567 pulp samples collected from previous drill programs were analysed. A pulp duplicate, and one certified standard were inserted into every 40 sample batch.

 

Data verification work completed by Largo and Micon has led to confidence in the database compiled by the original owners of the property. Largo’s ongoing quality assurance and quality control program has also led to confidence in the newly generated data.

 

Mineral Processing and Metallurgical Testing

 

The original process design was based primarily on the metallurgical testwork performed by SGS in 2007, a study undertaken by IMS Processing plant in 1990, a feasibility study completed by Lurgi in 1986, a metallurgical study performed by Rautaruukki Oy Research Centre between 1987 and 1989, and the detailed technical study produced by Engenharia e Consultoria Mineral S.A. (ECM) in 1990. A list of metallurgical and process technical and economic references can be found in Section 13.2 of the Technical Report.

 

Testwork was undertaken by SGS between April and November 2007 to investigate the recovery of vanadium from the Maracás Project mineralization. This program included mineral processing investigations using magnetic separation to recover vanadium contained in magnetite and hydrometallurgical extraction using roasting, leaching, precipitation and calcining to produce an intermediate vanadium oxide product. Additional SGS testwork was undertaken in 2012 to investigate beneficiation recoveries and concentrate analyses for the additional ore-bodies included in the expanded plan presented in the Technical Report.

 

Pilot scale testing was undertaken by Largo in 2010 to test bulk samples of high grade and low grade ore with respect to recovery and leaching performance.

 

After completion of the Definitive Feasibility Study (“DFS”) in 2010, at the request of the financing bank’s technical consultant, a pilot scale program was initiated to prove the viability of producing V2O5 from the Maracás Project ore and to confirm the process data reported in the feasibility study. Test work was done at Fundação Gorceix and involved obtaining a sample of the Maracás Project ore, beneficiating the ore to produce a V2O5 concentrate and then roasting the concentrate in a kiln to convert vanadium into a soluble form.

 

The roasted concentrate was then leached in water to produce a vanadium solution that was further processed through de-silication and ammonium metavanadate (“AMV”) precipitation steps. The AMV thus produced was then analyzed and calcined at SGS to produce V2O5. The complete process route has been described in the DFS.

 

It was not possible with available facilities to pilot the production of V2O5 and Ferrovanadium from AMV. Since these are state of the art technologies utilized by major Ferrovanadium producers their exclusion from the pilot program was considered acceptable as long as the AMV produced was of acceptable quality.

 

15

 

Mineral Resources and Mineral Reserve Estimates

 

On October 16, 2017 Largo disclosed Mineral Reserve and Mineral Resource estimates with an effective date of May 2, 2017 in a report titled Maracás Project, Bahia, Brazil, An Updated Mine Plan, Mineral Reserve and Preliminary Economic Assessment of the Inferred Resources, prepared by GE21 Consultoria Mineral.

 

The Mineral Resources for the Campbell Pit are estimated from drill core information stored in a secured central database and were evaluated using a geostatistical block modelling approach. A three-dimensional block model was generated to enable grade estimation. The selected block size was based on the geometry of the domain interpretation and the data configuration. The block size of 5 m E by 5 m N by 5 m RL was selected. The “percent” block modelling technique was used to represent the volume of the interpreted wireframe models. Sufficient variables were included in the block model construction to enable grade estimation and reporting.

 

Resource estimation for the Campbell Pit was undertaken using ordinary kriging (“OK”) as the principal estimation methodology for V2O5. The OK estimates were completed using Gemcom mining software. In 2016, Largo updated the Mineral Resource estimate for the Campbell Pit as a result of depletion of mined resources. This Measured and Indicated Resource was used to update the reserve and used for the new mine plan presented herein.

 

The new block model incorporates percent magnetics (percent of magnetic minerals in the mineralized rock) and magnetite concentrate grade for V2O5 and SiO2. No new drilling was available for the estimate; however, it was adjusted for mining completed to date. The updated Mineral Resources for Campbell are presented below:

 

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Campbell Mineral Resources - Maracás Project

Effective date: May 02nd 2017

 

Category

 

Tonnes
(million)

 

V2O5 Head
Grade (%)

 

V2O5 Contained
(kt)

 

V2O5 in
Concentrate (%)

 

Magnetics (%)

 

Measured (M)

 

18.08

 

1.19

 

215.0

 

3.19

 

30.55

 

Indicated (I)

 

1.70

 

1.28

 

21.7

 

3.12

 

34.64

 

M&I

 

19.78

 

1.20

 

236.7

 

3.19

 

30.90

 

Inferred

 

1.65

 

1.20

 

19.8

 

3.10

 

33.08

 

 

Notes:

 

(1)                                 Mineral Resources within a pit shell using US$34.20/t all in operating cost and reported at a 0.45% V2O5 cut-off, reviewed and confirmed by Fabio Valério Xavier (GE21).

(2)                                 Mineral Resources are classified as Measured, Indicated and Inferred based on relative levels of confidence in their estimation and on technical and economic parameters consistent with the methods most suitable to their potential commercial exploitation.

(3)                                 The Measured and Indicated Resources listed in the table above are inclusive of Mineral Reserves.

(4)                                 The Mineral Resource and Mineral Reserve estimates are reported in accordance with the NI 43-101 and the Canadian Institute of Mining, Metallurgy and Petroleum Definition Standards on Mineral Resources and Reserves (CIM Definition Standards) as a minimum standard.

 

Mineral Reserves have been estimated for the Campbell Pit with an effective date of May 02, 2017. The mine plan developed in the Technical Report is based on Measured and Indicated Resources only as delineated in the table above. Reserves are reported using a sales price of US$6.34/lb of V2O5. The ultimate pit design and mine plan was done to optimize kiln feed. The open pit Mineral Reserve estimate is based on a mine plan and open pit designs developed using modifying parameters including metal prices, metal recovery based on performance of the processing plant, operating and sustaining capital cost estimates based on the production schedule and equipment requirements. Other factors including; dilution, mining recovery, shipping terms, geotechnical characteristics of the rock mass, and the likelihood of obtaining land title, required permits environmental, social and legal licenses may affect the final Mineral Resources and Reserves, see “Risk Factors”.

 

The Mineral Reserves presented below were estimated by Porfírio Cabaleiro Rodriguez of GE21, who is a qualified person under NI 43-101 and a Member of the Australian Institute of Geoscientists.

 

Campbell Mineral Reserves - Maracás Project

Block dimensions 5x5x5 (m) - Mine Recovery 100% and Dilution 5%

Effective Date: May 02, 2017

 

Reserve Category

 

Tonnage (kt)

 

% V2O5 Head

 

% Magnetics

 

%V2O5 con

 

V2O5
Contained (kt)

 

Proven

 

17,570

 

1.14

 

29.66

 

3.21

 

167.3

 

Probable

 

1,440

 

1.26

 

33.89

 

3.20

 

15.6

 

Total in pit Reserve

 

19,010

 

1.15

 

29.98

 

3.21

 

182.9

 

 

Notes:

 

(1)                                 A Probable Mineral Reserve is the economically mineable part of an Indicated Mineral Resource, and in some circumstances, Measured Mineral Resource.

(2)                                 A Proven Mineral Reserve is, in most common circumstances, the economically mineable part of a Measured Mineral Resource.

(3)                                 Mineral Reserves are included in Measured and Indicated Resources.

(4)                                 The reference point at which Mineral Reserves are defined is the point where the ore is delivered from the open pit to the crushing plant.

(5)                                 The Mineral Resource and Mineral Reserve estimates are reported in accordance with the NI 43-101 and the CIM Definition Standards on Mineral Resources and Reserves (CIM Definition Standards) as a minimum standard.

 

Largo completed a revised block model and updated Mineral Resource estimate for the Near Mine Targets incorporating the drilling from the 2011 program including 72 holes totalling 13,401 m. The Near Mine Targets which extend north from Gulçari A for eight kilometers include from south to north: Gulçari A Norte, Gulçari B, São José, Novo Amparo and NAN. All are hosted in the RJS.

 

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The Near Mine Targets Mineral Resources below are based only on drilling to the end of 2012.  Additional exploration work commencing in 2018 is set out under the heading “Description of the Business — Exploration, Development and Production” below.  The Mineral Resources for the Near Mine Targets in the table below are considered current with the exception of the NAN deposit as described below.

 

Near Mine Targets Mineral Resources

Effective date: May 02, 2017

 

Deposits

 

Category

 

tonnes (kt)

 

V2O5 (%)

 

Contained V2O5
(tonnes)

 

Gulçari A Norte**

 

Inferred

 

9,730

 

0.84

 

81,388

 

Gulçari B**

 

Inferred

 

2,910

 

0.70

 

20,312

 

Novo Amparo**

 

Inferred

 

1,560

 

0.72

 

11,255

 

Novo Amparo Norte**

 

Inferred

 

9,720

 

0.87

 

84,453

 

Sao Jose**

 

Inferred

 

3,900

 

0.89

 

34,706

 

Near Mine Targets (Total)**

 

Inferred

 

27,820

 

0.83

 

232,114

 

 

** Resource within a pit shell using $US34.20/t all in operating cost and reported at a 0.45% V2O5 cut-off, reviewed and confirmed by Porfirio Cabaleiro Rodriguez (GE 21).

 

Mining Operations

 

The completion of the Expansion of the Maracás Menchen Mine in December 2019 increased our production to 10,577 t in 2019, with a new name plate capacity of 11,750 — 12,250 t anticipated in 2020. Currently Largo has a mining fleet which consists of four hydraulic excavators equipped with a 3.5-5 m3 bucket and a total of 28 Mercedes Benz 36-tonne capacity trucks. The contract drilling fleet consists of six Sandvik Ranger DX800 rotary drill rigs. A fleet of ancillary equipment is also available for mine maintenance and eventual plant services.

 

In 2019 mining operations at the Campbell Pit moved 1.15 million tonnes of ore 7.01 million tonnes of waste. The overall life of mine (“LOM”) show total mining of 19.73 million tonnes ore and stockpile and 60.21 million tonnes of waste for an overall strip ratio of 3.14. LOM average head grade of V2O5 of 0.96% and 76% global recovery. As of May 2, 2017, the effective date of the Technical Report, the LOM was estimated at 11 years.

 

Processing and Recovery Operations

 

The Maracás Menchen Mine vanadium recovery plant was commissioned in 2014 and has been in start-up mode for much of that time ramping up to near design capacity. At the time of writing the Technical Report, the plant produces up to 800 t/month, equivalent to a production rate of 9,600 t/a of V2O5.

 

The current process flow sheet comprises the following: three stages of crushing, one stage of grinding, two stages of magnetic separation, magnetic concentrate roasting, vanadium leaching, ammonium meta-vanadate (AMV) precipitation, AMV filtration, AMV calcining, and fusing to V2O5 flake as final product. A simplified process flow diagram for the production of V2O5 is presented in the Technical Report.

 

Originally sized to process 960,000 t/a run of mine the plant will be capable, after due modification, to process 1,900,000 t/a of feed ore with an average grade of 0.9% V2O5, 79% global recovery, and produce 13,200 t/a V2O5 by 2020. The plant is designed to operate 365 days per year, 7 days/week, 24 hours/day with an on-stream factor of 87%.

 

In 2019, global recovery from ore of V2O5 reached 78.5%.

 

Capital and Operating Costs

 

All capital expenditures are treated as sustaining capital expenditures for purposes of the Technical Report and the related cash flow analysis, and was estimated for the whole Maracás Project at US$71 million. The expansion project, which was completed in 2019, accounted for US$21 million and increased production capacity to 1,000 t/month. In 2020,

 

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Largo anticipates completing feed rate improvements on the kiln which is expected to increase nameplate production capacity to 1,100 t/month. The cost of the kiln feed rate improvements are anticipated at approximately US$1.3 million.

 

A constant value of US$3 million per year was provided for plant maintenance and spare parts, and an additional US$2 million in plant improvement projects.

 

Additional sustaining capex of US$1.5 million was estimated for mine drainage, US$4.3 million was estimated for exploration, and US$8.8 million for non-magnetic dams and chloride ponds.

 

Operating and administrative costs are based on real costs that are regularly incurred by Largo and are summarized below:

 

Average Operating Cost Summary

 

Operating Cost

 

US$

 

Mining (US$/t earth moving)

 

2.45

 

Processing (US$/lb V2O5)

 

1.78

 

General and Admin (US$/lb V2O5)

 

0.18

 

Royalties (CBPM, owner, CFEM, AP) (US$/lb V2O5)

 

0.34

 

 

Exploration, Development, and Production

 

In 2018 exploration activities at the Campbell Pit included a close spaced diamond drilling program of 31 holes (2,323 meters) designed to give greater detail to the ore body and help to guide mine production over the next two to three years. This program began in the middle of April 2018 and was completed on May 30, 2018. The data was modelled and used for mine planning and development purposes. Consultants from GE21 assisted in the modelling.

 

Phase II included a 4,950 metre drilling program focused on upgrading and expanding the NMT and along strike high priority targets. Drilling began on June 4, 2018 with two rigs focused at NAN and the Company completed 24 holes totalling 4,223 metres prior to December 31, 2018. This included 13 infill and 11 step out holes. On December 19, 2018, the Company announced that this program had expanded the mineralization to the north and south at NAN, defining targeted mineralisation over a strike length of 1.84 kilometers. Infill drilling was designed to upgrade the resource category at NAN.

 

Additionally, seven holes were drilled on targets south of the Campbell pit. The drill program was completed on October 23, 2018.

 

Previous drilling at NAN completed by the Company from 2011 to 2012 outlined a consistent zone of mineralisation over 790 meters with an average width of 18 meters and an average grade of 0.87% V2O5. The 2018 program was successful in extending mineralisation both to the north and south along strike by approximately 130% to approximately 1,840 meters.  The deposit remains open to the south and to depth.

 

The Company extended the Phase II definition drilling program at NAN in the first quarter of 2019.  Diamond drilling was initiated at NAN on January 15, 2019. In total, 47 diamond drill holes (5,404 metres) were completed. The work focused on increasing confidence in the resource categories and extending mineralisation at depth and along strike.  This program was completed mid-February 2019. The exploration program resulted in the conversion of Inferred Mineral Resources to Measured and Indicated categories, in addition to increasing the overall Inferred Mineral Resources. On June 11, 2019, the Company reported a new resource estimate for NAN on 12,912 metres (88 drill holes) of drilling with an effective date of May 31, 2019.

 

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Novo Amparo Norte Mineral Resource Estimate

Effective date: May 31, 2019

 

Category

 

Tonnes (mt)

 

Head Grade
V2O5 (%)

 

Magnetite (%)

 

Magnetic
Concentrate
V2O5 (%)

 

Contained V2O5
Magnetic
Concentrate
(tonnes)

 

Measured

 

6.25

 

0.91

 

33.1

 

2.32

 

48,046

 

Indicated

 

5.98

 

0.85

 

28.1

 

2.50

 

41,996

 

Total M & I

 

12.23

 

0.88

 

30.7

 

2.41

 

90,042

 

Inferred

 

11.33

 

0.90

 

31.2

 

2.46

 

86,960

 

 

Notes:

 

(1)                                 Mineral Resources have been classified using the Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”), CIM Standards on Mineral Resources and Reserves, Definitions and Guidelines prepared by the CIM Standing Committee on Reserve Definitions and adopted by the CIM Council.

(2)                                 Mineral Resources which are not Mineral Reserves do not have demonstrated economic viability.  The Inferred Mineral Resource in this estimate has a lower level of confidence than that applied to the Measured and Indicated Mineral Resource.  It is reasonably expected that a portion of the Inferred Mineral Resource could be upgraded to an Indicated Mineral Resource with continued exploration.

(3)                                 Magnetite content is determined by Davis Tube Test methodology.  V2O5 content of the magnetite concentrate was determined by XRF79C methodology at the SGS facility in Belo Horizonte, Brazil.

(4)                                 Cut-off grade for this calculation was 0.45% V2O5 head grade.

(5)                                 Numbers may not add up exactly due to rounding.

 

Exploration work shifted to the Novo Amparo (NAO) deposit where 4,646 metres (24 drill holes) of drilling were completed. Drilling was also undertaken at the São José (SJO) deposit where 2,813 metres (18 drill holes) of drilling were completed.  Further drilling was carried out on the Gulçari A Norte and Gulçari B (now considered one target known as Gulçari A Norte or “GAN”) where 21 drill holes (3,501 m) were completed.  Drilling on all targets focused on extending and upgrading known mineralisation as defined in the 2017 Technical Report.  The Company also completed 1,177 metres of drilling (three holes) near the Campbell Pit to explore for target horizons down dip and along strike of the current reserve area.  South of the Campbell Pit, 16 diamond drill holes (2,313 m) were completed on the Gulçari A South (GAS) target.

 

Based on extensive drill programs in 2018 and 2019, relogging of holes from old drilling campaigns, geological mapping and geophysical signatures, the RJS was interpreted as similar to tube/funnel transition “Eagle/Kalatonke Type” mafic to ultramafic layered intrusion, a pathway stagnated magmatic chamber with periodical injections of magma denominated as magmatic cycles.  Cycles are divided according to the phase stratification of the mineral magnetite. Processes such as fractional crystallization and magma mixing are highlighted as the main drivers to changes in parameters as pressure and oxygen fugacity, which provided for the formation of known mineralisation.

 

In total, 10 magmatic cycles have been identified in RJS, in response to successive magma inputs in an open system (cycle C1 to cycle C10). Cycles C1 to C3 appear to be restricted to the Campbell Pit, where more robust layers of magnetite and ultramafic rocks were formed.  These layers are currently being mined in the Gulçari A (Campbell Pit) deposit. Cycles C4 to C10 have been defined to the north and south beyond Campbell Pit, with successive layers of magnetite associated with mafic rocks such as magnetite-gabbros, gabbros to anorthosites. These layers give rise to the deposits called NMT in the RJS. This genetic model also explains the higher levels of vanadium in the Gulçari A deposit, associated with more primitive magmas richer in vanadium metal.

 

Largo engaged ALS Global Brazil for all drilling and sampling preparation and analytical services.

 

Plans for surface exploration over the Maracás Project area includes an estimated 23,500 meters of diamond drilling, significant analytical and Davis Tube test costs, resource modelling, metallurgical testing and additional ground geophysical surveying to further identify and/or define additional targets for diamond drilling and resource studies. The total forecast exploration expenditure for 2020 is R$13.4 million ($4.5 million).

 

Specialized Skill and Knowledge

 

All aspects of the business of the Company require specialized skill and knowledge. Such skill and knowledge include the areas of geology, drilling, logistical planning, engineering, construction, mine operations, metallurgical processing, environmental compliance and accounting. The Company employs or retains a number of technical personnel with relevant experience, education and professional designations, and constantly evaluates the need for additional employees and or consultants with particular expertise.

 

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Competitive Conditions

 

The mineral exploration and mining business is a competitive business. The Company competes with numerous companies that have resources significantly in excess of the resources of the Company, in the search for (i) attractive mineral properties; (ii) qualified service providers and labour; (iii) equipment and suppliers; and (iv) purchasers for minerals produced. The pricing that the Company will receive for V2O5 produced from its projects will be based on global prices and, ultimately, factors that are significantly out of its control. The ability of the Company to acquire additional mineral properties in the future will depend on its ability to develop and operate its present properties, and also on its ability to select and acquire suitable producing properties or prospects for mineral development or exploration. See “Risk Factors — Risks Related to the Business and Operations”.

 

Environmental Protection and Licensing and Permits

 

The current and future operations of the Company, including development and mining activities, are subject to extensive federal, provincial and local laws and regulations governing environmental protection, employee health and safety, exploration, development, tenure, production, taxes, labour standards, occupational health, wastes disposal, greenhouse gas emissions, protection and remediation of environment, reclamation, mine safety, toxic substances and other matters. Compliance with such laws and regulations increases the costs of and delays planning, designing, drilling and developing the Company’s properties. The Company is subject to various reclamation-related conditions imposed under federal or provincial rules and permits in connection with its development and exploration. See “Risk Factors”

 

Environmental licences associated with a mining project in Brazil involve the issuance of the relevant licences by a multidisciplinary technical review team appointed by the State Council for Environmental Matters (“CEPRAM”) to review the project. This review team sets terms of reference for the environmental impact assessment (“EIA”) and the Relatório de Impacto Ambiental (“RIMA”). The RIMA summarizes the full impact assessment so that it can be reviewed by the public. See “Risk Factors — Risks Released to Brazil”.

 

Marketing and Distribution

 

Global supply of vanadium is relatively concentrated and is not readily sold on global marketplaces. Benchmark prices are generally based on the London Metal Bulletin however, due to the supply and demand characteristics of vanadium, pricing is often difficult to ascertain and is subject to wide fluctuations, see “Risk Factors — Risks Related to the Business and Operations — Our business is highly dependent upon the price of vanadium”. Global demand for vanadium is not as robust as compared to other minerals and so the marketing of vanadium products and the identification of key consumers and markets is critical to the distribution and sale of vanadium.

 

During 2019, the price of vanadium ranged from US$17.75 to US$4.45 per pound and, as at March 13, 2020, the range posted by London Metal Bulletin was US$4.80 to US$5.50 per pound. Significant price increase in 2018 created supply and demand shocks that converged in 2019. Since reaching a bottom in Q4, 2019, price recovery in Q1, 2020 has been tempered by fears of a global economic slowdown from the COVID-19 pandemic, see “Risk Factors — Risks Related to the Business and Operations”.

 

In September 2019, the Company gave notice to Glencore International AG that it will terminate the Offtake Agreement with Glencore effective April 30, 2020. Until its effective termination, we have agreed to sell in U.S. dollars to Glencore, and Glencore agreed to acquire, 100% of the V2O5 production at the Maracás Menchen Mine. We have executed amendments to the Offtake Agreement which, among other things, allow us to participate with Glencore on a 50:50 basis in the upside from selling VPURE+ Flake and VPURE+ Powder into specialty markets in the event that a premium is achieved on such sales. See “Risk Factors — Risks Related to the Business and Operations”.

 

Following the termination of the Offtake Agreement, the Company will be responsible for the marketing and distribution of all of our vanadium production including VPURE Flake, VPURE+ Flake and VPURE+ Powder, and assuming completion of the Ferrovanadium Conversion Plant, ferrovanadium powder. In connection with the non-renewal of the Offtake Agreement, Largo Ireland hired Mr. Vollant and Largo USA hired Mr. D’Alesssio to lead the build out of the Company’s global sales capacity through Largo Ireland and Largo USA, respectively, for all vanadium products. Mr. Vollant is Director

 

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of Sales and Trading and is tasked with leading the development of the Company’s sales and trading with a focus on the global vanadium market. Mr. Francesco D’Alessio is Head of Sales, Americas and is tasked with expanding sales in North and South America.

 

The vanadium sales cycle commences in Q4 of the year preceding coincident with the main industry conferences in Europe and the United States. The Company intends to commit the majority of its anticipated annual vanadium production to annual sales contracts with remaining vanadium production being committed to spot sales. Accordingly, to date, the Company has commitments close to 90%of its 2020 vanadium production that will remain following the termination of its commitments to Glencore International AG pursuant to the Offtake Agreement.

 

Maracás Menchen Mine

 

The terms of reference for the Maracás Menchen Mine EIA/RIMA included a social impact, alternatives, and archaeological assessment, in addition to the basic physical and biological environmental impact assessment. Generally, the following licences are issued by CEPRAM in order to bring a mine into production in the State of Bahia:

 

·                  localization license (“LL”)

 

·                  installation license (“LI”)

 

·                  preliminary operating license (“LPO”)

 

·                  operating license (“LO”)

 

Issuance of the LL allows the rest of the licensing process to proceed and the EIA and RIMA are completed during this process. The LL involves the participation of the public and any non-government organization who wish to participate through public meetings. For the Maracás Menchen Mine, the Instituto do Meio Ambiente (“IMA”), the Bahia state environmental agency, hosted these meetings in February 2009 in Maracás and Porto Alegre, which are two towns located in the vicinity of the project site. Following this, IMA submitted the project to CEPRAM who at their April 2009 monthly meeting endorsed IMA’s recommendation that the LL be granted. The LL is a very critical step in the environmental permitting process and concludes the active participation of the public.

 

The LI involves an approval process involving only Largo and the government agencies noted above. The process includes the submission of more detailed information regarding the project and a detailed description of the proposed environmental management system that was outlined in the LL documentation previously submitted.

 

The LO is granted during the final stages of commissioning and involves a site inspection by IMA, with the likely participation of CEPRAM, to confirm that the project has been constructed as planned and in accordance with the LI. For the Maracás Menchen Mine, Largo received its LL and LI, respectively, on May 13, 2009 and October 20, 2011. In May of 2014, Largo was granted its LPO for the Maracás Menchen Mine. The LPO is issued following completion of commissioning and prior to issuance of the LO for the project. The Company received the LO for the Maracás Menchen Mine in November 2014 which indicates that the plant was built, and was operating, according to its design specifications and environmental guidelines. The LO is valid for 2 years at which time it may be renewed for extension within 6 months of the LO’s expiry date for an additional 2-5 years. The LO was last renewed in October 2018.

 

Employees

 

The Company and its material subsidiary have approximately 379 persons on staff, working full time as either employees or on a consulting basis, and have also retained a service provider in Brazil who deploys approximately 537 additional persons. The Company also retains geologists, engineers, and other consultants on a contract basis as required. The Company has not experienced, and does not expect to experience, significant difficulty in attracting and retaining qualified personnel. However, no assurance can be given that a sufficient number of qualified employees can be retained by the Company when necessary. See “Risk Factors — Risks Related to the Business and Operations”.

 

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Foreign Operations

 

At present, the Company’s operating facilities are all located in Brazil. Consequently, the Company is at the date of this AIF dependent on its foreign operations. See “Risk Factors — Risks Related to Brazil”.

 

RISK FACTORS

 

Investing in the Company involves risks that should be carefully considered. The operations of the Company are speculative due to the high-risk nature of its business. Investors should be aware that there are various risks, including those discussed below, that could have a material adverse effect on, among other things, the development of the Maracás Menchen Mine, and the operating results, earnings, business and condition (financial or otherwise) of the Company. See “Cautionary Note Regarding Forward-Looking Information” at the beginning of this AIF.

 

Risks Related to the Business and Operations

 

Our business is highly dependent upon the price of V2O5.

 

Our financial performance is highly dependent on the market price of V2O5, which accounted for 100% of our gross revenue in 2019. Mineral prices, including prices for V2O5, fluctuate widely and are affected by numerous factors beyond the control of the Company. The level of global economic activity, interest rates, speculative activities, supply and demand balances and the stability of exchange rates can all cause significant fluctuations in prices. Such external economic factors are in turn influenced by changes in international investment patterns, monetary systems, and political developments. The price of mineral commodities, including V2O5, has fluctuated widely in recent years, and future price declines could cause commercial production to be commercially unattractive, thereby having a material adverse effect on the Company’s business, financial condition and result of operations.

 

The London Metal Bulletin price for V2O5 was trading in the range of US$4.80 and US$5.85 per pound V2O5 on December 31, 2019, compared to US$15.00 to US$16.00 per pound V2O5 on December 28, 2018, and US$9.60 to US$9.90 per pound on December 29, 2017. Factors that are generally understood to contribute to variations in the price of V2O5 include changes in global steel production levels, changes in the specific V2O5 consumption rate in the steel industry, production availability and inventories. Future volatility in V2O5 price will have a material effect on the Company’s revenues, profitability and reserves.

 

The price of V2O5 , as reported by London Metal Bulletin, decreased materially in 2019 from a high of US$17.38 per pound V2O5 in the first quarter of the year to a low of US$4.73 per pound V2O5 in the fourth quarter of 2019. This decrease is due in part to increased supply of V2O5 following the price peaks at the end of 2018 and a reduction in demand in part by global battery consumption and production. Since the end of 2019, price recovery in Q1, 2020 has been tempered by fears of a global economic slowdown from the COVID-19 pandemic and, as of March 13, 2020, the London Metal Bulletin price ranged from US$4.80 to US$5.50 per pound of V2O5.

 

Our capital and operating cost estimates may prove inaccurate and, consequently, lead to unanticipated costs or capital expenditures, which could affect our financial condition and results of operations.

 

Capital and operating cost estimates made by our management are estimates which are in turn based on, among other things, our interpretation of geological data, feasibility studies, anticipated climatic conditions and other information. Any or all of these can affect the accuracy of the estimates including: (i) unanticipated changes in grade and tonnage to be mined and processed; (ii) incorrect data on which engineering assumptions are made; (iii) unanticipated transportation costs; (iv) accuracy of equipment and construction cost estimates; (v) difficulty or failure to meet scheduled construction completion dates, facility or equipment commissioning dates, or metal production dates; (vi) poor or unsatisfactory construction quality resulting in failure to meet completion, commissioning or production dates; (vii) increased expenditures required as a failure to meet completion, commissioning or production dates; (viii) capital overruns related to the completion of any construction phase including capital overruns associated with demobilization of construction workers and contractors; (ix) labour negotiations; (x) unanticipated costs relating to the commencement of operations, ramp up and production sustainment; (xi) changes in government regulation (including regulations

 

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regarding prices, cost of consumables, royalties, duties, taxes, permitting and restrictions on production quotas or exportation of our products); (xii) change in commodity input costs and quantities; and (xiii) communication issues including familiarity with language, between domestic and foreign employees, contractors, advisors, agents and government officials. If any of our estimates of capital and operating costs or capital expenditures are materially inaccurate, it could have a material adverse effect on our business, results of operations and financial condition.

 

We may not be able to generate enough revenue to achieve sustained profitability, in particular as we are a single asset operation.

 

As of the date of this AIF, the Company has recorded revenues from only one project, the Maracás Menchen Mine. There can be no assurance that losses (including significant losses) will not occur in the near future or that the Company will be profitable in the future. The Company’s operating expenses and capital expenditures may increase in subsequent years for consultants, personnel and equipment associated with advancing exploration, development and commercial production of other properties by the Company. The Company’s costs of sales may also increase as the Company transitions from the Offtake Agreement to developing its own sales and trading capabilities. The development of other properties by the Company will require the commitment of substantial resources to conduct time-consuming development. There can be no assurance that the Company will generate revenues from other projects or achieve profitability.

 

Our 2019 audited annual consolidated financial statements were prepared on a going concern basis, which assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. As of December 31, 2019, the Company had an accumulated deficit of approximately $64.1 million, and had a net working capital surplus of $102.0 million. Total amounts due within 12 months on the Company’s long term debt are $nil. Although the Company has been successful in the past in obtaining financing there is no assurance that it will be able to obtain adequate financing in the future or that such financing will be on terms advantageous to the Company.

 

Substantially all of our revenues are derived from the sales of vanadium products produced at the Maracás Menchen Mine. This lack of diversification of our business could adversely affect our financial condition, results of operations and cash flows.

 

We rely on the V2O5 production from the Maracás Menchen Mine for all of our revenues. For the year ended December 31, 2019, revenues from the sales of vanadium products accounted for 100% of our total revenues. As noted above, demand for V2O5 mainly depends on global demand for steel. As one of the few producers of high purity V2O5 globally, demand from the aerospace and chemical industries are also essential to Largo and enables it to achieve premiums over the standard market prices for steel applications. At times, the pricing and availability of steel can be volatile due to numerous factors beyond our control. Since we are heavily dependent on the steelmaking industry, adverse economic conditions in that industry, even in the presence of otherwise favorable economic conditions in the broader vanadium mining industry, could have a significantly greater impact on our results of operations and financial condition than if our business were more diversified. In addition, our lack of diversification may make us more susceptible to such adverse economic conditions than our competitors with more diversified operations and/or asset portfolios.

 

Effective April 30, 2020, the Company’s Offtake Agreement with Glencore International AG will terminate. We may not be able to generate sufficient revenue from sales of vanadium products.

 

The Company has given notice to Glencore International AG of the nonrenewal of its Offtake Agreement. The Offtake Agreement will terminate in accordance with its terms, and the notice of termination given thereunder, effective April 30, 2020. During the existence of the Offtake Agreement the Company has relied, and will continue to rely until its effective termination, on the Offtake Agreement for 100% of the sales of vanadium products produced in our Maracás Menchen Mine. The final financial settlement under the Offtake Agreement may exceed the termination of the Offtake Agreement by several months and we anticipate a significant payment adjustment owing to Glencore International AG. Under the Offtake Agreement, during an up-market we are unable to explore other commercial and distribution possibilities and from taking advantage of potential opportunities to benefit from increased global demand for high-purity V2O5 products which may command higher prices at the spot market than the prices set by the Offtake Agreement. Effective September

 

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2019, Mr. Paul Vollant has joined Largo Ireland as Director of Sales and Trading to lead the development of our global sales and trading business unit, and effective October 21, 2019, Mr. Francesco D’Alessio joined Largo USA as Head of Sales, Americas to lead sales in North and South American markets. See also “General Development of the Business — Three Year History — Operations”, and “Description of the Business — Marketing and Distribution”.

 

The Offtake Agreement provided certainty of sales as the agreement required our offtake partner to purchase 100% of the V2O5 produced in our Maracás Menchen Mine. There can be no assurance that we will be able to sell 100% of our production capacity, generate sufficient revenue from sales or achieve profitability.

 

Our ability to successfully develop and implement our sales and trading business is inherently subject to a number of risks and uncertainties and will require the commitment of substantial resources of both management and capital. In particular, material risks and uncertainties in connection with these developments include, without limitation:

 

·                  the initial capital costs required to develop and support the sales department and product storage facilities;

·                  the difficulties and costs associated with building out a channel of sales networks;

·                  the ability to attract, train, and retain qualified sales personnel;

·                  the ability to develop and advance new relationships with end customers and with distribution partners;

·                  the ability to manage inventory, and fulfill orders;

·                  third party transportation risks;

·                  increased exposure to global currency fluctuations;

·                  the impact of customs duties and tariffs;

·                  end-customer demand may not meet expectations; and

·                  the Company may produce more vanadium products than it is capable of settling.

 

There can be no assurance that the Company will be able to complete the build-out of its sales and trading unit prior to the effective termination of the Offtake Agreement, or at all.

 

See also “Risk Factors — Risks Related to the Business and Operations — Our business is highly dependent upon the price of V2O5”.

 

Global events outside of the Company’s control, such as the COVID-19 pandemic, may adversely affect demand for our products, our ability to maintain operations and our financial results.

 

The international outbreak of the respiratory illness COVID-19 (also referred to as the ‘coronavirus’) and efforts to contain it may have a significant effect on both Chinese and global commodity demand and prices, and may also impact third parties’ ability to meet their obligations to the Company and the Company’s ability to meet its obligations to its customers.

 

COVID-19, or any other contagious diseases or public health threats in the human population, could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect demand for the Company’s products and negatively impact our operating results and financial performance.

 

Global pandemics and other public health threats (like COVID-19), or a fear thereof, could adversely impact our production operations, sales efforts, expansion projects, lead to labour shortages, and severely impact supply chain logistics including travel and shipping disruptions and shutdowns (including as a result of government regulation and prevention measures) affecting delivery of the raw materials we need to operate and delivery of our products to customers, among others. It is unknown whether and how the Company may be affected if such an occurrence persists for an extended period of time but we anticipate that it would have a material adverse effect on our business, operating results and financial performance. In addition, the Company may also be required to incur additional expenses and/or delays relating to such events which could have a further negative impact on our business, operating results and financial performance.

 

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Failure to achieve production targets or cost estimates could adversely affect our sales, profitability, cash flows and financial performance.

 

The Company prepares future operating and capital cost estimates with respect to existing operations. Actual production and costs may vary from the estimates for a variety of reasons such as estimates of grade, tonnage, dilution and metallurgical and other characteristics of the ore varying from the actual ore mined, revisions to mine plans, risks and hazards associated with mining, adverse weather conditions, unexpected labour shortages or strikes, equipment failures and other interruptions in production capabilities. Operating costs may also be affected by increased mining costs, variations in predicted grades of the deposits, increases in level of ore impurities, labour costs, raw material costs, inflation and fluctuations in currency exchange rates. Failure to achieve production targets or cost estimates could have a material adverse impact on the Company’s sales, profitability, cash flow and overall financial performance.

 

Our business requires substantial capital expenditures to achieve its operational and strategic objectives and is subject to financing risks.

 

The mining business is capital intensive and the development and exploitation of vanadium reserves and the acquisition of machinery and equipment require substantial capital expenditure. We have a number of plans for our existing operations, which could involve significant capital expenditure. In particular, we must continue to invest significantly to maintain or to increase the amount of reserves that we exploit and the amount of V2O5 that we produce. Some of our development projects and prospects may require greater investment than currently planned. In addition, our ability to continue our exploration, exploitation, development and operational activities will depend ultimately on our ability to generate cash flows and secure financing as required. There can be no assurance that we will be able to maintain our production levels and generate sufficient cash flow, or that we will have access to sufficient investments, loans or other financing alternatives, to continue our development and processing activities at or above present levels and failure to do so, could result in delays.

 

Our controlling shareholders have the ability to determine the outcome of corporate actions or decisions, and its interests may conflict with those of our other shareholders.

 

The ARC Funds are capable of controlling the direction of the Company through the right to nominate three of the six persons for election as directors of the Company, who will be subject to the vote of the shareholders. Unilateral control over a majority of the persons nominated for election as directors of the Company will enable the ARC Funds to determine the persons responsible for managing the direction of the Company. The ARC Funds directly own approximately 43.96% of our outstanding Common Shares as of the date of this AIF and therefore have the ability to determine the outcome of most corporate actions or decisions requiring the approval of our shareholders. The interests of our controlling shareholder may conflict with those of our other shareholders.

 

We are subject to comprehensive environmental regulations. Compliance with environmental regulations and procurement of the necessary environmental permits to operate may result in significant costs, and failure to comply with environmental regulations may result in significant environmental liabilities.

 

Our operation in Brazil is subject to stringent Brazilian federal, state and local environmental laws and regulations concerning human health, the handling and disposal of solid and hazardous wastes and discharges of pollutants into the air and water.

 

Any failure to comply with such laws and regulations may subject the Company to penalties, including warnings, payment of fines, embargo and suspension of activities, which may cause a significant adverse effect on the Company. We have incurred and we will continue to incur capital expenses in order to continue to comply with these laws and regulations. In addition, such laws and regulations are subject to change and can become more stringent, making our compliance efforts more costly.

 

In addition, Brazilian companies whose activities are deemed as potentially polluting activity may be subject to an environmental licensing process. Such environmental licensing process has three sequential stages:

 

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·                  Preliminary License (“LP”): The LP is granted in the preliminary planning phase of a project or activity and it approves the location and the environmental impact assessment of a project, attesting to its environmental feasibility and determining the basic requirements and conditions to be observed in the subsequent permitting stages;

 

·                  Installation License (“LI”): The LI is granted so that a project or activity can be installed or constructed, in accordance with the specifications presented and subject to further conditions so as to mitigate and compensate any negative impacts;

 

·                  Operational License (“LO”): The LO is granted for a project or activity to commence the operational phase subject to further conditions.

 

In the State of Bahia, where our Maracás Menchen Mine operates, the environmental licensing process is under the responsibility of INEMA.

 

Such process takes into consideration the nature and size of a project as well as the impacts and the characteristics of the ecosystem affected by the installation and operation of a project, based on the information provided by the Environmental Impact Assessment and Report (“EIA/RIMA”). The EIA/RIMA is a comprehensive study that includes analysis of the environmental, social and economic impact of the project.

 

Currently, the Maracás Menchen mine is fully licensed. The current Operation License (LO) - which is the main license for the company’s operation, is valid until October 6th, 2020. Any failure to obtain the future renewal of the existing license or to obtain any necessary license, the permission or approval required for the development of our activities, may have a material adverse effect on our business, operation results and financial condition.

 

Our project in Canada is also subject to extensive Canadian laws and regulations relating to pollution, protection of the environment and the generation, storage, handling, transportation, treatment, disposal and remediation of hazardous substances and waste materials. Costs and capital expenditures relating to environmental, health or safety matters are subject to evolving regulatory requirements and depend on the promulgation and enforcement of specific standards which impose applicable requirements. Moreover, changes in environmental regulations could inhibit or interrupt our operations, or require modifications to our facilities. Accordingly, environmental, health or safety regulatory matters may result in significant unanticipated costs or liabilities.

 

We are subject to risks posed by litigation, arbitration and other disputes under binding agreements with various third parties.

 

The Company has entered into legally binding agreements with various third parties under supply contracts and consulting agreements. The interpretation of the rights and obligations that arise from such agreements may be open to differing interpretations and the Company may disagree with the position taken by other parties to these agreements. This could result in a dispute which, if unresolved, might trigger a litigation or arbitration process, causing the Company to incur possible legal or similar costs in the future. Given the speculative and unpredictable nature of litigation or the arbitration process, final outcomes in such disputes may have material adverse effects on the Company.

 

The mining business is subject to a number of risks and hazards, not all of which are fully covered by insurance.

 

The mining business is subject to risks and hazards, many of which are outside our control. Hazards associated with mining operations include environmental hazards, industrial accidents, encountering unusual or unexpected geological deposits, cave ins or landslides, flooding, earthquakes, underground fires and explosions, including those caused by flammable gas, gas and coal outbursts, falling rocks, tunnel collapses, lack of oxygen, air pollution, discharges of tailings, hazardous substances and materials, gases and toxic chemicals, sinkhole formations and ground subsidence, other accidents and conditions resulting from underground mining, such as drilling, blasting, removing and processing material. These occurrences could result in damage to, or destruction of, mineral properties or production facilities, human exposure to pollution, personal injury or death, environmental damage, reduced production and delays in mining, asset write downs, reputational damage, monetary losses and possible legal liability.

 

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Although we maintain insurance in an amount we consider adequate, liabilities might exceed policy limits, which could cause us to incur significant costs that could materially and adversely affect our results of operations. Insurance that fully covers many environmental risks (including potential liability for pollution or other hazards as a result of disposal of waste products occurring from exploration and production) is not generally available to us or to other companies in the mining industry, particularly in Brazil following the Samarco dam collapse in 2015. The realization of any significant liabilities in connection with our mining activities as described above could have a material adverse effect on our results of operations or financial condition.

 

Our business is exposed to the cyclicality of global economic activity and requires significant investments of capital.

 

As a mining company, we are a supplier of industrial raw materials. Industrial production tends to be the most cyclical and volatile component of global economic activity, which affects demand for minerals and metals. At the same time, investment in mining requires a substantial amount of funds in order to replenish reserves, expand and maintain production capacity, build infrastructure, preserve the environment and minimize social impacts. Sensitivity to industrial production, together with the need for significant long term capital investments, are important sources of risk for our financial performance and growth prospects.

 

Developments in China could have a negative impact on our revenues, cash flows and results of operations.

 

The Chinese market is a significant source of global demand for commodities and has been the main driver of global demand for V2O5 over the last few years. In Q3 2019, Chinese demand represented approximately 58% of global demand for V2O5. Therefore, any contraction of China’s economic growth that is not offset by reduced supply or increased demand from other regions, could result in lower demand for our products, leading to lower prices and lower revenues, cash flow and results of operations. Poor performance in the Chinese real estate sector, a significant consumer of steel in China, would also negatively impact our results. Conversely, China was also responsible for approximately 63% of global V2O5 production in 2019. Favorable economic conditions could increase supply beyond demand and depress pricing, which would also negatively impact our results.

 

Our business may be adversely affected by declines in demand for and prices of the products our customers produce.

 

Demand for V2O5 depends on global demand for steel. Vanadium is used in the steel industry in the production of HSLA steels, high alloy steels, high speed and tool steels, and engineering steels. Demand for steel depends heavily on global economic conditions, but it also depends on a variety of regional and sectoral factors. The prices of different steels and the performance of the global steel industry are highly cyclical and volatile, and these business cycles in the steel industry affect demand and prices for our products.

 

We may not be able to obtain additional financing on acceptable terms, or at all.

 

Future exploration, development, mining, and processing of minerals from our properties could require substantial additional financing. No assurances can be given that we will be able to raise the additional funding that may be required for such activities, should such funding not be fully generated from operations. To meet such funding requirements, we may be required to undertake additional equity financing, which would be dilutive to shareholders. Debt financing, if available, may involve certain restrictions on operating activities or other financings. There is no assurance that such equity or debt financing will be available to us or that they would be obtained on terms favorable to us, if at all, which may adversely affect our business and financial position. Failure to obtain sufficient financing may result in delaying or indefinite postponement of exploration, development or production on any or all of our properties, or even a loss of property interests.

 

Our industry is highly competitive, and increased competition could adversely affect our margins and market share.

 

The global mining industry is highly competitive. Our existing and potential competitors include some of the world’s largest mining companies and the Company competes with many other mining companies that have substantially greater resources than the Company. We currently face, or may face in the future, competition from other producers of V2O5 globally. Some of these companies may be able to produce at a lower cost than we can. For example, some of our

 

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domestic and international competitors may benefit from tax breaks and may be able to better compete against us. In addition, some of our competitors are larger than us and may have greater financial and technical resources, which may enable them to invest significant capital into their businesses, including expenditures for research and development. Such competition may result in the Company being unable to acquire desired properties, recruit or retain qualified employees or acquire the capital necessary to fund its operations and develop its properties. If a current or future competitor develops proprietary technology that enables it to produce at a significantly lower cost, our technology could be rendered uneconomical or obsolete. Increased competition could compel us to reduce the prices of our products, which could result in reduced margins and loss of market share and have a material adverse effect on us.

 

We also face competition from other processing, trading and industrial companies. Competition principally involves sales, supply and labour prices, contractual terms and conditions, attracting and retaining qualified personnel and securing the services and supplies we need for our operations. For example, lower cost producers of V2O5 could be better positioned to manage future volatility through commodity price cycles. In addition, mines have limited lives and, as a result, we must periodically seek to replace and expand our reserves by acquiring new properties and by developing projects. Significant competition exists to acquire mining concessions, land and related assets with potential mineralization. Some other mining companies may have greater financial resources than us, and we may be unable to acquire attractive new mining properties on terms that we consider acceptable. As a result, our revenues from the sales of vanadium products may decline over time, thereby materially and adversely affecting our results of operations or financial condition.

 

Potential changes to international trade regulations and agreements, as well as other political and economic arrangements (including direct or indirect subsidies) may benefit V2O5 producers or traders operating in countries other than where our mining operations are currently located or adversely affect the prices we pay for the supplies we need and our export costs when we engage in international transactions. We cannot assure you that we will be able to compete on the basis of price or other factors with companies that in the future may benefit from favorable regulations, trading or other arrangements or that we will be able to maintain the cost of the supplies we require or our export costs. The Company’s inability to compete with other mining companies for these resources would have a material adverse effect on the Company’s results of operation and business.

 

We are dependent on third parties for development, construction and operations.

 

The Company has relied upon external consultants, engineers and others and intends to rely on these parties for, among other things, the development, construction and operating expertise. Substantial expenditures are required to construct mines, to establish Mineral Reserves through drilling, to carry out environmental and social impact assessments, to develop metallurgical processes to extract the metal from the ore and, in the case of new properties, to develop the exploration and plant infrastructure at any particular site. In addition, the Company relies on a service provider who deploys approximately 537 contractors for our mining, administration, maintenance and other operations. If such parties’ work is deficient or negligent or is not completed in a timely manner, it could have a material adverse effect on the Company.

 

Interruptions of energy supply or increases in energy costs and other production costs may materially and adversely affect our results of operations.

 

We obtain the necessary electric power for the operation of our equipment and facilities from third parties through electricity supply contracts. In the event of any interruption or failure of our sources of electricity or in transmission lines or in any part of the grid, we cannot assure you that we will have access to other energy sources at the same prices and conditions, which could materially and adversely affect our results of operations and have a material adverse effect on our business, financial condition and result of operations.

 

The availability of energy resources may be subject to change or curtailment, due to, among other things, new laws or regulations, imposition of new taxes or tariffs, supply interruptions, equipment damage, worldwide price levels and market conditions. Disruptions in energy supply could have a material adverse effect on our financial condition and results of operations.

 

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Our operations depend on rail, port, marine, shipping or other transportation services provided by third parties.

 

Operation of our facilities, existing and future, will depend in part on the flow of materials, supplies, equipment, services and products. Due to the geographic location of the Company’s operations, existing and future, it remains and will remain dependent on the provision by third parties of rail, port, marine, shipping or other transportation services. Potential issues including contractual disputes, demurrage charges, port or depot capacity handling issues, availability of vessels, rail cars or other modes of cargo transport, weather problems, force majeure and labour disruptions could have a material adverse effect on the Company’s ability to transport various materials necessary for the operation of its facilities in accordance with schedules or contractual requirements. This might result in a material adverse effect on the Company’s business, results of operations and financial performance.

 

Our concessions may be terminated or not renewed by governmental authorities.

 

Under the laws of the jurisdictions where our operations, development projects and prospects are located, Mineral Resources belong to the state and government concessions are required to explore for and exploit Mineral Reserves. The concessions we hold for our operations may be terminated under certain circumstances, including where minimum investment or production levels are not achieved (or a corresponding penalty is not paid), if certain fees are not paid or if environmental and safety standards are not met. Termination of any one or more of our mining or other concessions could have a material adverse effect on our financial condition or results of operations.

 

There are risks inherent with obtaining and maintaining title to properties.

 

The acquisition and maintenance of titles to resource properties is a very detailed and time-consuming process. The Company holds its interests in certain of its properties through mining claims. Title to, and the area of, the mining claims may be disputed. There is no guarantee that such title will not be challenged or impaired. There may be challenges to the title of the properties in which the Company may have an interest which, if successful, could result in the loss or reduction of the Company’s interest in those properties.

 

Although the nature and extent of the interests of the Company in the properties in which it holds an interest has been reviewed by or on behalf of the Company, and title opinions have been obtained by the Company with regard to certain of such properties, there may still be undetected title defects affecting such properties. Title insurance generally is not available in Canada or Brazil, and the ability of the Company to ensure that it has obtained secure claim to individual mineral properties or mining concessions may be constrained.

 

The properties in which the Company holds an interest may be subject to prior unregistered liens, agreements, transfers or claims, and title may be affected by, among other things, the structure through which the Company maintains its interest in its properties and undetected defects which could have a material adverse impact on the Company’s operations. In addition, the Company may be unable to, effectively (if at all), conduct business at or operate on its properties as permitted or to enforce its rights with respect to those properties.

 

No assurances can be given that title defects to the properties in which the Company has an interest do not exist. The properties may be subject to prior unregistered agreements, interests or aboriginal land claims and title may be affected by undetected defects. If title defects do exist, it is possible that the Company may lose all or a portion of its right, title, estate and interest in and to the properties to which the title defect relates. There is no guarantee that title to the properties will not be challenged or impugned.

 

The Company does not maintain insurance against title. Title on mineral properties and mining rights involves certain inherent risks due to the difficulties of determining the validity of certain claims as well as the potential for problems arising from the frequently ambiguous conveyance history of many mining properties. The Company has investigated title to its mineral claims; however, this should not be construed as a guarantee of title. The Company cannot give any assurance that title to any of its properties will not be challenged or impugned and cannot guarantee that the Company will have or acquire valid title to these mining properties. For example, title to existing properties or future prospective properties may be lost due to an omission in the claim of title, prior activities of the property vendors or changes in Brazilian mining laws or the application thereof which affects the Company’s title or the Company’s rights and interests

 

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in its properties. The Company has obtained title reports from Canadian and Brazilian legal counsel with respect to its interest, respectively, in its Canadian and Brazilian properties, but this should not be construed as a guarantee of title or the Company’s rights to these claims. Other parties may dispute the title of the Company or the joint venture to any of its mineral properties and any of such properties may be subject to prior unregistered agreements or transfers or aboriginal land claims and title may be affected by undetected encumbrances or defects or governmental actions.

 

There are risks inherent with our corporate structure.

 

Vanádio, the material Brazilian subsidiary of the Company which holds a 100% interest in the Company’s Maracás Menchen Mine, is a limited liability company, and as such does not require a Board and is controlled by its shareholders. The management of the Company has control over Vanádio by virtue of owning 99.94% of the shares of Vanádio. Therefore, the management of the Company can effectively (i) appoint and dismiss at any time any and all of the officers of Vanádio, (ii) instruct the officers of Vanádio to pursue the Company’s business activities, (iii) has legal rights as a shareholder to require the officers of Vanádio to comply with their fiduciary obligations, and (iv) can also enforce its rights by way of the shareholder remedies available to it. As a result, the management of the Company can effectively align the Issuer’s business objectives and effect the implementation of same at the level of Vanádio.

 

The Company, as the holder of a 99.94% interest in Vanádio, can remove and appoint officers by way of simple communication that such officer is being removed from his/her position and the subsequent filing of same with the Board of Trade. The Board, through its corporate governance practices and, in particular, the activities of its board committees, regularly receives management and technical updates and progress reports in connection with Vanádio. In so doing, the Board maintains effective oversight of the operations and project development activities of Vanádio.

 

The Board has the ability to exert effective control over Vanádio as discussed herein. Accordingly, the Board will be able to cause Vanádio to transfer funds and accomplish the various operating aspects of the business when Vanádio is generating revenues.

 

Certain of the directors and officers of the Company have extensive experience doing business in both Canada and Brazil. In particular, Paulo Misk, Alberto Arias and Daniel Tellechea are the directors of the Company that have experience in conducting business in Brazil and Les Ford (former Senior Vice President and Technical Director of Brazilian Operations and currently consultant to the Company) is an individual with experience in conducting business in Brazil. Moreover, Alberto Arias is fluent in Portuguese.

 

Knowledge of the local business, culture and practices is imparted by these individuals to other directors and officers of the Company, furthermore, several of the non-resident directors and officers visit Brazil on a regular basis in order to ensure effective control and management of the operations and as a result come into contact with other employees, personnel, government officials, business persons and customers who are locals in Brazil. This enables them to enhance their knowledge on these fronts. Paulo Misk, formerly the Chief Operating Officer of the Company and now Chief Executive Officer of the Company, is resident in Brazil and travels to the mine site regularly.

 

All directors and executive officers of the Company have some familiarity with the legal and regulatory requirements of Brazil. Brazilian legal counsel (both internal at Vanádio and external) and Brazilian management ensure that the Company’s management is kept aware of relevant material legal developments in Brazil as they pertain to and affect the Company’s business and operations. Any material developments are then discussed with the directors at the board level.

 

Other than as discussed herein, the Company does not currently have a formal communication plan or policy in place and has not, to date, experienced any communication-related issues due to the fact that the management team located in Brazil is proficient in the English language.

 

The Company will, from time to time, re-evaluate whether a formal communication policy is necessary. The Company hires and engages local experts and professionals (i.e. legal and tax consultants) to advise the Company with respect to current and new regulations in respect of banking, financial and tax matters. The Company utilizes large, established and well recognized financial institutions in both Canada and Brazil. Directors visit the Company’s operations in Brazil several times per year and have regular board meetings by telephone which include the Company’s Chief Executive Officer and

 

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Chief Financial Officer and other relevant Vanádio officers and managers. The Company arranges for site visits to its projects as deemed appropriate. The Company hosted one site visit for members of the Board of Directors in 2019 and two in 2018 and in 2017. The operations committee of the Board of Directors held two site visits in 2019.

 

The directors and officers also work closely with Brazilian counsel and Brazilian employees of the Company and its subsidiaries to understand and subsequently adjust firm strategies and practices relating to changes in Brazilian laws and regulatory regimes.

 

Each member of the management team located in Brazil speaks fluent Portuguese and all are proficient in English. Paulo Misk, Chief Executive Officer, and Luciano Chaves, Vice President of Finance and Administration in Brazil, Álvaro Resende, Production Director are each fluent in Portuguese and English.

 

Alberto Arias is a director and non-executive Chairman of the Company who is fluent in English and Portuguese. The primary language used in management and board meetings is English. The management team located in Brazil dealing with the operating staff and outside consultants communicate in Portuguese with such individuals as necessary. Both Vanádio and the Company have translators on staff to assist with all communication requirements, as needed.

 

Material documents relating to the Company that are provided to the board are in English. When original material documents are prepared in Portuguese, these are typically translated by the Company’s Brazilian legal counsel, who are fluent in English and Portuguese. When required, the Company will sometimes use third party translation services.

 

We depend on key personnel and any inability to recruit and retain key personnel may adversely affect our business.

 

Recruiting and retaining qualified personnel in the future is critical to the Company’s success. The number of persons skilled in the exploration and development of mining properties is limited and competition for this workforce is intense. Any expansion of the Company’s properties may be significantly delayed or otherwise adversely affected if the Company cannot recruit and retain qualified personnel as and when required.

 

Our success also depends, in large measure, on the skills, experience and efforts of our senior management team and other key personnel. The loss of the services of one or more members of our senior management or of employees with critical skills may have a negative effect on our business, financial condition and results of operations. We may experience difficulty in attracting and retaining the skilled employees we may require to replace lost employees or grow our business. If we are unable to attract or retain highly skilled, talented and committed senior managers or other key employees, it may adversely affect our ability to fully implement our business objectives.

 

Our directors and officers may from time to time have a conflict of interest.

 

Certain of the Company’s directors and officers serve or may agree to serve as directors or officers of other companies and, to the extent that such other companies may participate in ventures in which the Company may participate, the directors of the Company may have a conflict of interest in negotiating and concluding terms respecting such participation.

 

We are subject to anti-corruption, anti-bribery, anti-money laundering, sanctions and antitrust laws and regulations.

 

We are subject to anti-corruption, anti-bribery, anti-money laundering, sanctions, antitrust and other similar laws and regulations. We are required to comply with the applicable laws and regulations of Brazil and Canada, and we may become subject to such laws and regulations in other jurisdictions. There can be no assurance that our internal policies and procedures will be sufficient to prevent or detect any inappropriate practices, fraud or violations of law by our affiliates, employees, officers, executives, partners, agents, suppliers and service providers, nor that any such persons will not take actions in violation of our policies and procedures. Any violations by us or any of our affiliates, employees, directors, officers, partners, agents, suppliers and service providers of anti-bribery and anti-corruption laws or sanctions regulations could have a material adverse effect on our business, reputation, results of operations and financial condition.

 

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Labour disputes may disrupt our operations from time to time.

 

A substantial number of our employees, and some of the employees of our subcontractors, are represented by labour unions and are covered by collective bargaining or other labour agreements, which are subject to periodic negotiation. Strikes and other labour disruptions at any of our operations could adversely affect the operation of facilities and the timing of completion and cost of our capital projects. Moreover, we could be adversely affected by labour disruptions involving unrelated parties that may provide us with goods or services. In May, 2018, production at our Maracás Menchen Mine was suspended for four days due to a national truckers’ strike in Brazil which was settled on May 30, 2018.

 

Our business is subject to environmental, health and safety incidents.

 

Our operations involve the use, handling, storage, discharge and disposal of hazardous substances into the environment and the use of natural resources, and the mining industry is generally subject to significant risks and hazards, including fire, explosion, toxic gas leaks, spilling of polluting substances or other hazardous materials, rockfalls, incidents involving dams, failure of other operational structures and incidents involving mobile equipment, vehicles or machinery. This could occur by accident or by breach of operating and maintenance standards, and could result in a significant environmental and social impacts, damage to or destruction of mineral properties or production facilities, personal injury, illness or death of employees, contractors or community members close to operations, environmental damage, delays in production, monetary losses and possible legal liability. Additionally, in remote localities, our employees may not have access to timely emergency medical care which may affect their health and safety. Notwithstanding our standards, policies and controls, our operations remain subject to incidents or accidents that could adversely affect our business, stakeholders or reputation.

 

Under Brazilian law, any individual or legal entity (whether public or private) that directly or indirectly causes harm to the quality of the environment may be held liable for the recovery, remediation or compensation of the damages that were generated, without regard to whether there is a direct or indirect connection between their act (or omission) and the damage caused to the environment. There are three types of liabilities that may be applied cumulatively: (i) civil, (ii) administrative and (iii) criminal.

 

Civil liability for environmental damages is strict, requiring that the responsible parties remediate the damage in full or pay compensation when remediation is not possible. Civil liability also applies jointly and severally to those who facilitate, benefit from and contribute to the occurrence of environmental damage. As a result, the party bringing the environmental claim may freely choose whom to sue.

 

There is no limit to the amount that Brazilian courts may award to cover the costs of repairing the damage. If the damage cannot be repaired, Brazilian courts may order the payment of an indemnity. Environmental civil liability is not subject to a statute of limitations under Brazilian law.

 

With respect to criminal liability, Federal Law 9,605/98 provides that the legal entity and its individual representatives whose criminal actions were taken for the benefit of such entity can be held liable for criminal offences against the environment. In the case of the liability of the individual representatives, there needs to be some element of willful misconduct. In the case of the legal entity, a strict liability rationale applies: the legal entity can be charged regardless of the implication of any other individual representatives if it is confirmed that willful misconduct was undertaken for the benefit of the legal entity and by a decision of its representatives. Criminal sanctions applicable to legal entities include fines, the partial or total suspension of activities and embargos, prohibitions on contracting with governmental entities, as well as on obtaining subsidies, grants or donations, for a maximum period of 10 years.

 

Administrative liability arises from any action or omission in violation of the Federal Decree No. 6,514/2008, which sets out the administrative environmental infractions and the corresponding penalties, setting fines amounting to a maximum of R$50 million, as well as suspension of activities. Such liability can be pursued against the legal entity or the individual person that may incur any such infraction.

 

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We rely on various operating and financial systems and data which may expose us to cyber security threats.

 

The Company and its operations rely on various operating and financial systems and data. Cybersecurity risk is increasingly difficult to identify and quantify and cannot be fully mitigated because of the rapidly evolving nature of the threats, targets and consequences. A breach of the Company’s information or operational technology systems may result in disruption of business activities, loss of confidential or proprietary data, failure of internal controls over financial reporting, failure to meet obligations and reputational damage. Such a breach may also expose the Company to legal and regulatory action. Policies and procedures are maintained to ensure the security of its information technology systems, and data and system security controls are regularly tested. The Company also relies on third-party service providers for the storage and processing of various data. There can be no assurance, however, that the Company will not suffer a business disruption or loss or corruption of proprietary data, whether inadvertent or otherwise.

 

Enforcement of civil claims against the Company in Canada may be difficult as the majority of our assets are located outside of Canada.

 

The majority of our subsidiaries and the majority of our assets are located outside of Canada. Accordingly, it may be difficult for investors to enforce within Canada any judgments obtained against the Company, including judgments predicated upon the civil liability provisions of applicable Canadian securities laws or otherwise. Consequently, investors may be effectively prevented from pursuing remedies against the Company under Canadian securities laws or otherwise.

 

The Company has subsidiaries incorporated in the United States, Brazil and Ireland. It may not be possible for shareholders to effect service of process outside of Canada against the directors and officers of the Company, and independent qualified persons engaged by the Company, who are not resident in Canada. In the event a judgment is obtained in a Canadian court against one or more of such persons for violations of Canadian securities laws or otherwise, it may not be possible to enforce such judgment against persons not resident in Canada. Additionally, it may be difficult for an investor, or any other person or entity, to assert Canadian securities law or other claims in original actions instituted in the United States, Brazil or Ireland. Courts in these jurisdictions may refuse to hear a claim based on a violation of Canadian securities laws or otherwise on the grounds that such jurisdiction is not the most appropriate forum to bring such a claim. Even if a foreign court agrees to hear a claim, it may determine that the local law, and not Canadian law, is applicable to the claim. If Canadian law is found to be applicable, the content of applicable Canadian law must be proven as a fact, which can be a time-consuming and costly process. Certain matters of procedure will also be governed by foreign law.

 

Risks Related to Our Industry

 

The vanadium market is small and highly concentrated and therefore susceptible to swings in the availability of supply.

 

Most of the world’s supply of V2O5 is derived from mined ore, either directly as mineral concentrates derived from VTM or from steelmaking slags, where the steel was produced from VTM. A significant majority (approximately 91%) of the world’s V2O5 comes from four source countries: China, South Africa, Russia and Brazil. While Canada, Germany, Japan, and the United States, as well as several other European countries, continue to recover V2O5 from petroleum residues, the market is currently very small and highly concentrated.

 

Any collusion or concerted action between the major producers in China, South Africa and/or Russia could impact the availability of supply which could in turn have a negative impact on the price of V2O5.

 

Demand for V2O5 is highly dependent on demand for steel.

 

The steel industry accounts for approximately 91% of global total V2O5 consumption. HSLA carbon steels account for more than half of global V2O5 consumption. HSLA steels are a class of relatively new steel alloys which use small amounts of vanadium, niobium, titanium or some combination of these microalloying elements to impart higher strength and fine grains structure in the steel. Special steels including tool steels, high speed steels and special alloy steels account for close to one third of global V2O5 consumption. Vanadium is also used in the production of titanium alloys for aerospace,

 

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industrial and consumer applications. It is used as a catalyst in oxidation reactions and in pollution control systems. Other applications include pigments, corrosion inhibitors and other minor chemical processes.

 

While new markets for V2O5 may arise in the future, for example, a market in energy storage applications, a significant majority of V2O5 is currently being used in connection with the steel industry, in particular HSLA carbon steels and special steels. Any fall in demand and/or production for HSLA carbon steels and special steels could impact industry demand for V2O5 and, in turn, have a negative impact on the price of V2O5

 

Mineral Resource and Mineral Reserve estimates may be inaccurate. Our actual Mineral Reserves could be lower than such estimates, which could adversely affect our operating results, financial condition, cash flows and the life of our mine.

 

There are numerous uncertainties inherent in estimating Mineral Resources and Mineral Reserves, including many factors beyond the control of the Company. The accuracy of any Mineral Resource or Mineral Reserve estimate is a function of the quantity and quality of available data and of the assumptions made and judgments used in engineering and geological interpretation. These amounts are estimates only and the actual level of mineral recovery from such deposits may be different. Undue reliance should not be placed on estimates of Mineral Resources and Mineral Reserves, since these estimates are subject to numerous uncertainties. Differences between management’s assumptions, including economic assumptions such as metal prices and market conditions, could have a material adverse effect on the Company’s financial position, cash flows, results of operations and the life of our mine.

 

Our reported Mineral Reserves are estimated quantities of V2O5 that we have determined can be economically mined and processed under present and assumed future conditions. There are numerous uncertainties inherent in estimating quantities of reserves and in projecting potential future rates of mineral production, including factors beyond our control. Reserve reporting involves estimating deposits of minerals that cannot be measured in an exact manner, and the accuracy of any reserve estimate is a function of the quality of available data, engineering and geological interpretation and judgment. As a result, no assurance can be given that the indicated amount of V2O5 will be recovered or that it will be recovered at the rates we anticipate. Reserve estimates and estimates of mine life may require revisions based on actual production experience, projects, updated exploration drilling data and other factors. For example, lower market prices of minerals and metals, reduced recovery rates or increased operating and capital costs due to inflation, exchange rates, changes in regulatory requirements or other factors may render proven and probable reserves uneconomic to exploit and may ultimately result in a reduction of reserves. Such a reduction could affect depreciation and amortization rates and have an adverse effect on our financial performance.

 

We may not be able to replenish our reserves, which could adversely affect our mining prospects.

 

We engage in mineral exploration, which is highly uncertain in nature, involves many risks and frequently is non-productive. Our exploration programs, which involve significant expenditures, may fail to result in the expansion or replacement of reserves depleted by current production. If we do not develop new reserves, we will not be able to sustain our current level of production beyond the remaining lives of our existing mines.

 

We face rising extraction costs or investment requirements over time as reserves deplete.

 

Reserves are gradually depleted in the ordinary course of a given open pit or underground mining operation. As mining progresses, distances to the primary crusher and to waste deposits become longer, pits become steeper, mines may move from being open pit to underground, and underground operations become deeper. In addition, for some types of reserves, mineralization grade decreases and hardness increases at greater depths. As a result, over time, we may experience rising unit extraction costs with respect to our mine, or we may need to make additional investments, including adaptation or construction of processing plants and expansion or construction of tailings dams. Our mine may experience rising extraction costs per unit in the future.

 

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Nature of mining operations, mineral exploration and development projects and mining businesses generally involve a high degree of risk.

 

Mining operations generally involve a high degree of risk. The Company’s operations and those of its subsidiaries are subject to the hazards and risks normally encountered in mineral exploration, development and production, including environmental hazards, explosions, unusual or unexpected geological formations or pressures and periodic interruptions in both production and transportation due to inclement or hazardous weather conditions. Such risks could result in damage to, or destruction of, mineral properties or producing facilities, personal injury, environmental damage, delays in mining, monetary losses and possible legal liability.

 

Development projects have no operating history upon which to base estimates of future cash operating costs. For development projects, resource and reserve estimates and estimates of cash operating costs are, to a large extent, based upon the interpretation of geological data obtained from drill holes and other sampling techniques, and feasibility studies, which derive estimates of cash operating costs based upon anticipated tonnage and grades of ore to be mined and processed, ground conditions, the configuration of the ore body, expected recovery rates of minerals from the ore, estimated operating costs, anticipated climatic conditions and other factors. As a result, actual production, cash operating costs and economic returns could differ significantly from those estimated. Indeed, current market conditions are forcing many mining operations to increase capital and operating cost estimates. It is not unusual for new mining operations to experience problems during the start-up phase, and delays in the commencement of production can often occur.

 

Mineral exploration is highly speculative in nature. There is no assurance that exploration efforts will be successful. Even when mineralization is discovered, it may take several years until production is possible, during which time the economic feasibility of production may change. Substantial expenditures are required to establish proven and probable Mineral Reserves through drilling. Because of these uncertainties, no assurance can be given that exploration programs will result in the establishment or expansion of Mineral Resources or Mineral Reserves. There is no certainty that the expenditures made by the Company towards the search and evaluation of mineral deposits will result in discoveries or development of commercial quantities of ore.

 

Risks Related to Brazil

 

The Brazilian government has historically exercised, and continues to exercise, significant influence over the Brazilian economy. Brazilian political and economic conditions may adversely affect us.

 

In 2019, 100% of our revenue was derived from our operations in Brazil. Accordingly, our business, financial condition, results of operations and cash flows depend, to a considerable extent, upon economic and political conditions in Brazil.

 

Political and economic conditions directly affect our business and can result in a material adverse effect on us. Macroeconomic policies imposed by the Brazilian government can have significant impact on Brazilian companies or companies with significant operations in Brazil, including us.

 

The Brazilian economy has been characterized by frequent and occasionally significant intervention by the Brazilian government and unstable economic cycles. The Brazilian government has often changed monetary, taxation, credit and other policies to influence the course of Brazil’s economy. The Brazilian government’s actions to control inflation have at times involved setting wage and price controls, blocking access to bank accounts, imposing exchange controls, capital inflow and outflow controls and limiting imports and exports.

 

We cannot control or predict whether the current Brazilian government will implement changes to existing policies or the impact such changes may have on our operations in Brazil and, consequently, our business. Our business, operating results and financial condition and prospects, as well as the market price of our securities, may be adversely affected by changes in Brazil’s public policies, whether federal, state or local, that affect, without limitation:

 

·                  inflation;

 

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·                  fluctuations in exchange rates;

 

·                  exchange controls and restrictions on remittances abroad, such as those imposed in 1989 and early 1990;

 

·                  interest rates and monetary policies;

 

·                  import and export controls;

 

·                  liquidity of domestic capital, credit and financial markets;

 

·                  expansion or contraction of the Brazilian economy, as measured by rates of growth in gross domestic product, or GDP;

 

·                  fiscal policies; and

 

·                  other political, social and economic developments in or affecting Brazil.

 

Government policies and measures to combat inflation, along with public speculation about such policies and measures, have often had adverse effects on the Brazilian economy, contributed to economic uncertainty in Brazil and increased volatility in the Brazilian securities markets. The Brazilian government’s actions to control inflation have often involved price and salary controls, currency devaluations, capital limitations, limits on imports and other actions.

 

Other policies and measures adopted by the Brazilian government, including interest rate adjustments, intervention in the currency markets or actions to adjust or fix the value of the real may adversely affect the Brazilian economy, our business and results of operations.

 

Uncertainty over whether the Brazilian federal government will implement reforms or changes in policy or regulation affecting these or other factors in the future may affect economic performance and contribute to economic uncertainty in Brazil, which may in turn have adverse effects on our operations in Brazil and consequently on the results of our operations. Recent economic and political instability has led to a negative perception of the Brazilian economy and higher volatility in the Brazilian securities markets.

 

Operation Lava Jato or similar investigations and political instability resulting therefrom may adversely affect our business and results of operations. Additionally, such investigations may result in reputational risks.

 

Brazil’s political environment has historically influenced, and continues to influence, the performance of the country’s economy. Political crises have affected and continue to affect investor confidence and that of the general public, which resulted in economic deceleration and heightened volatility in the securities issued by Brazilian companies or of companies with significant operations in Brazil.

 

Brazilian markets have been experiencing heightened volatility due to the uncertainties derived from the ongoing Lava Jato investigation, which is being conducted by the Office of the Brazilian Federal Prosecutor, and its impact on the Brazilian economy and political environment. Certain members of the Brazilian federal government and of the legislative branch, as well as senior officers of large state-owned companies, are facing allegations of political corruption for officials allegedly accepting bribes by means of kickbacks on contracts granted by the government to several infrastructure, oil and gas, and construction companies, among other sectors. Profits of these kickbacks allegedly financed the political campaigns of political parties of the previous federal government coalition that were unaccounted for or not publicly disclosed, as well as served to personally enrich the recipients of bribery schemes. As a result, a number of senior politicians, including congressmen and officers of major private and state-owned companies in Brazil, resigned or have been arrested, and certain senior elected officials and other public officials are being investigated for allegations of unethical and illegal conduct identified during the Lava Jato investigation. There can be no assurance that any person, directly or indirectly connected to us, such as employees, statutory executive officers, members of the board of directors, suppliers, services providers or sub-contractors, is not or will not be implicated in the Lava Jato operation or similar investigations that may adversely affect our image and reputation.

 

The potential outcome of the investigations related to the Lava Jato operation is uncertain, but they have already had an adverse impact on the image and reputation of the implicated companies, and on the general market perception of the Brazilian economy. We cannot predict whether the allegations will lead to further political and economic instability or whether new allegations against government officials or other companies will arise in the future. In addition, we cannot

 

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predict the outcome of any such allegations nor their effect on the Brazilian economy. The development of the cases could adversely affect us.

 

Changes in tax laws, tax incentives and benefits, or differing interpretations of tax laws, may adversely affect our results of operations.

 

The Brazilian tax authorities have frequently implemented changes to tax regimes that may affect the Company and ultimately the demand of the Company’s customers for the products the Company sells. These measures include changes in prevailing tax rates and enactment of taxes, both temporary and permanent. Most recently, effective June 1, 2018, the Brazilian government reduced the Reintegra tax credit available to exporters from 2% to 0.1% in order to offset tax cuts that it had implemented on diesel fuel in a proposal to end a truck driver’s strike in June 2018. While this reduction does not materially affect the Company, it is demonstrative of the Brazilian Government’s ability to quickly make changes to Brazilian laws.

 

Some of these changes may increase the Company’s tax burden, which may increase the prices the Company charges for the products the Company sells, restrict the Company’s ability to do business in the Company’s existing markets and, therefore, materially adversely affect the Company’s results of operations. There can be no assurance that the Company will be able to maintain the Company’s projected cash flows and results of operations following any increases in Brazilian taxes that apply to us and the Company’s operations.

 

In addition, the Company currently receives certain tax benefits. There can be no assurance that these benefits will be maintained or renewed. Also, given the current Brazilian political and economic environment, there can be no assurance that the tax benefits the Company receives will not be judicially challenged as unconstitutional. If the Company is unable to renew the Company’s tax benefits, such benefits may be modified, limited, suspended, or revoked, which may adversely affect us.

 

Moreover, certain tax laws may be subject to controversial interpretation by tax authorities. In the event that tax authorities interpret tax laws in a manner that is inconsistent with the Company’s interpretations, the Company may be adversely affected.

 

During the 2018 presidential campaign there were discussions with respect to the revocation of income tax exemptions over payment of dividends, which currently exists in Brazil. Although it is not possible to determine whether the newly elected president and the new members of Congress will pass legislation to this effect, it is possible that the revocation of such exemption and other reforms in Brazil’s tax system will be discussed and eventually implemented by the new government.

 

Our operations are exposed to political, economic, and policy risks relating to operating in Brazil.

 

The Company’s principal properties are located in Brazil. As in any foreign country, mineral exploration and mining activities may be affected to varying degrees by changes in political, social and financial stability, and inflation. Any shifts in political, social or financial stability conditions are beyond the control of the Company and may adversely affect the Company’s business. Brazil’s status as a developing country may make it more difficult for the Company to obtain sufficient financing required for the exploration and development of its properties due to real or perceived increased investment risk.

 

The Company’s operations may also be adversely affected by changes in foreign government policies and legislation and other factors which are not within the control of the Company, including, but not limited to, renegotiation or nullification of existing contracts, claims or licenses, changes in mining policies or the legislation or regulatory requirements affecting mining or the personnel administering them, currency fluctuations and devaluations, exchange controls, factors (including withholding taxes) affecting foreign subsidiaries’ abilities to remit funds to the Company, economic sanctions, royalty and tax increases and retroactive tax claims, risk of terrorist activities, revolution, border disputes, implementation of tariffs and other trade barriers and protectionist practices, taxation policies, volatility of financial markets and fluctuations in foreign exchange rates, labour disputes and other risks arising out of foreign governmental sovereignty over the areas in which the Company’s operations are conducted. The Company’s operations may also be

 

38

 

adversely affected by laws and policies of such foreign jurisdictions affecting foreign trade, taxation and investment. If the Company’s operations are disrupted and/or the economic integrity of its contracts is threatened for unexpected reasons, there may be a corresponding material adverse effect on the Company’s business or operations.

 

In the event of a dispute arising in connection with the Company’s operations in a foreign jurisdiction where the Company conducts its business, the Company may be subject to the exclusive jurisdiction of foreign courts or may not be successful in subjecting foreign persons to the jurisdictions of the courts of Canada or enforcing Canadian judgments in such other jurisdictions. The Company may also be hindered or prevented from enforcing its rights with respect to a governmental instrumentality because of the doctrine of sovereign immunity. Accordingly, the Company’s activities in foreign jurisdictions could be substantially affected by factors beyond the Company’s control, any of which could have a material adverse effect on the Company.

 

The Company may in the future enter into agreements in order to expand its business and activities beyond the jurisdictions in which it currently does so. Such an expansion may present challenges and risks that the Company has not faced in the past, any of which could materially adversely affect the results of operations and/or financial condition of the Company.

 

Changes in rain patterns and other climatic effects may adversely impact the Company’s operations.

 

The effects of changes in rainfall patterns, water shortages and changing storm patterns and intensities have from time to time adversely impacted, and may in the future adversely impact, the cost, production levels and financial performance of the Company’s operations. There is no guarantee that there will be sufficient future rainfall to support the Company’s future demands in relation to its sites and operations, and this has and could adversely affect production or the Company’s ability to develop or expand projects and operations in the future. In addition, there can be no assurance that the Company will be able to obtain alternative water sources on commercially reasonable terms or at all in the event of prolonged drought conditions. Conversely, some of the Company’s sites and operations may in the future be subject, from time to time, to severe storms and high rainfalls leading to flooding and associated damage, which may result in, delays to, or loss of production and development of some of its sites, projects or operations. Extreme rain and flood conditions may exceed site water storage capacity with the potential for involuntary release by way of overflow from tailings storage facilities, which may cause environmental damage. Environmental damage may result in fines or even in criminal sanctions for violations, in addition to the obligation to redress any environmental damages cause, all of which may negatively affect our results of operations or financial condition.

 

Our delay or failure to complete the Ferrovanadium Conversion Plant could have an adverse effect on the Company’s growth prospects.

 

Successful completion of the Ferrovanadium Conversion Plant is subject to various factors, many of which are not within our control. These factors include the granting of consents and permits from the relevant government authorities, the availability, terms, conditions and timing of acceptable arrangements for transportation, construction and refining, the performance of engineering and construction contractors, mining contractors, suppliers and consultants, as well as the qualification of additional reserves. The lack of availability of acceptable contractual terms, or slower than anticipated performance by any contractor, could delay or prevent the successful completion of the Ferrovanadium Conversion Plant. Further expansion of our project may be compromised in the event of a prolonged decline in the market price of V2O5. There can be no guarantee as to when the Ferrovanadium Conversion Plant will be finalized, whether the resulting operations will achieve anticipated production volumes or whether the costs will be in line with those anticipated. The inability to complete the Ferrovanadium Conversion Plant as planned may negatively impact our operations, financial condition and growth prospects.

 

Inflation and efforts by the Brazilian government to combat inflation may contribute significantly to economic uncertainty in Brazil and could have an adverse effect on us.

 

Brazil has historically experienced periods of high inflation. Inflation, as well as governmental measures put in place to combat inflation, have had a material adverse effect on the Brazilian economy. Inflationary pressures persist, and actions taken in an effort to curb inflation, coupled with public speculation about possible future governmental actions, have in

 

39

 

the past contributed to economic uncertainty in Brazil and heightened volatility in the Brazilian securities market. The inflation rate in Brazil, as reflected by the Broad Consumer Price Index (Índice Nacional de Preços ao Consumidor Amplo) published by the Brazilian Institute of Geography and Statistics or IBGE (Instituto Brasileiro de Geografia e Estatística), was 4.31% in 2019, 3.75% in 2018 and 2.95% in 2017.

 

As a result of inflationary pressures and macroeconomic instability, the Brazilian government has historically adopted monetary policies that have resulted in Brazil’s interest rates being among the highest in the world. The Central Bank of Brazil sets the base interest rates (Sistema Especial de Liquidação e Custódia) (the “SELIC rate”) generally available to the Brazilian banking system, based on the expansion or contraction of the Brazilian economy, inflation rates and other economic indicators. The SELIC was 4.5% on December 31, 2019, 6.5% on December 31, 2018 and 7.00% on December 31, 2017. As of March 2020 the SELIC rate was 4.25%. Brazilian interest rates remain high, and any increase in interest rates could negatively affect our profitability and results of operations and could increase the costs associated with financing our operations.

 

Inflation and government measures to combat inflation, along with speculation about possible future governmental measures, have had and are expected to continue to have significant negative effects on the Brazilian economy, including heightened volatility in the Brazilian securities market. In addition, measures to control inflation have often included maintaining a tight monetary policy with high interest rates, thereby restricting the availability of credit and limiting economic growth. On the other hand, these policies may be incapable of preventing increases in inflation rates. Furthermore, the absence of such policies may trigger increases in inflation rates and thereby adversely affect economic stability. In the event of an increase in inflation, we may not be able to adjust the prices we charge our customers to offset the effects of inflation on our cost structure, which may adversely affect us.

 

Exchange rate fluctuations in Brazil against the U.S. dollar could adversely affect us.

 

Exchange rate instability may have a significant negative effect on the economies in which we operate and could adversely affect us. For example, the Brazilian currency has been historically volatile and has been devalued frequently over the past three decades. Since 1999, the Central Bank of Brazil has allowed the real to U.S. dollar exchange rate to float freely, and during this period, the real to U.S. dollar exchange rate has experienced frequent and substantial variations in relation to the U.S. dollar and other foreign currencies. Throughout this period, the Brazilian government has implemented various economic plans and used various exchange rate policies, including sudden devaluations, periodic mini-devaluations (during which the frequency of adjustments has ranged from daily to monthly), exchange controls, dual exchange rate markets and a floating exchange rate system.

 

Although long-term depreciation of the real is generally linked to the rate of inflation in Brazil, depreciation of the real occurring over shorter periods of time has resulted in significant variations in the exchange rate between the real, the U.S. dollar and other currencies. We cannot predict whether the Central Bank of Brazil or the Brazilian government will continue to let the real float freely or intervene in the exchange rate market by returning to a currency band system or otherwise. The real may depreciate or appreciate substantially against the U.S. dollar and other currencies. Furthermore, Brazilian law provides that, whenever there is a serious imbalance in Brazil’s balance of payments or there are substantial reasons to foresee a serious imbalance, temporary restrictions may be imposed on remittances of foreign capital abroad. We cannot assure you that such measures will not be taken by the Brazilian government in the future.

 

The real /U.S. dollar exchange rate reported by the Central Bank was R$3.3080 per U.S. dollar on December 31, 2017, which reflected a 1.5% depreciation of the real  against the U.S. dollar during 2017. The real/U.S. dollar exchange rate reported by the Central Bank was R$3.8748 per US$1.00 on December 31, 2018, which reflected a 17% depreciation of the real against the U.S. dollar during 2018. As of December 31, 2019, the exchange rate for the purchase of U.S. dollars as reported by the Central Bank was R$ 4.0307 per US$1.00, which reflected a 4% depreciation of the real against the U.S. dollar during 2019.

 

Also, the prices of certain raw materials used in our operations in Brazil are denominated in or linked to the U.S. dollar. When the Brazilian real depreciates against the U.S. dollar, the cost in Brazilian reais of our U.S. dollar-linked raw materials increases, and our operating income in Brazilian reais decreases to the extent that we are unable to pass on these cost increases to our customers.

 

40

 

In the course of our business, we may decide to enter into financial derivative transactions in the future to hedge our exposure to foreign currency exchange rate variations. However, we cannot assure you that these instruments will be available to us at favorable terms, if at all, or will fully hedge our exposure.

 

A devaluation of the real against the U.S. dollar might also create inflationary pressures in Brazil and lead to increases in interest rates, which could adversely affect the growth of the Brazilian economy as a whole, and undermine our financial situation and operating results. On the other hand, the appreciation of the real in relation to the U.S. dollar may undermine the economy growth driven by exports in Brazil.

 

Because of the degree of volatility and the uncertainty of the factors that impact the Brazilian real’s exchange rate, it is difficult to predict future exchange rate movements. In addition, the Brazilian government may change its foreign currency policy, and any governmental interference in the exchange rate, or the implementation of exchange control mechanisms, could influence the real’s exchange rate. In light of the foregoing, there can be no assurance we will be able to protect ourselves against the effects of adverse fluctuations of the Brazilian real against the U.S. dollar.

 

Any further downgrading of Brazil’s credit rating could adversely impact the Brazilian economy and our operations.

 

Credit ratings affect investors’ perceptions of risk and, as a result, the trading value of securities and yields required on future debt issuance in the capital markets. Rating agencies regularly evaluate Brazil and its sovereign ratings, which are based on a number of factors, including macroeconomic trends, fiscal and budgetary conditions, indebtedness metrics and the prospect of changes in any of these factors.

 

Rating agencies began the classification review of Brazil’s sovereign credit rating in September 2015. Brazil lost its investment grade status by the three main rating agencies. On September 30, 2015, S&P initially reduced Brazil’s credit rating from BBB- to BB+ and, subsequently, in February 2016, reduced it again from BB+ to BB, and maintained its negative outlook on the rating, citing a worsening credit situation since the first downgrade. In February 2018, S&P lowered its long term rating for Brazil’s sovereign credit from BB to BB-, with a stable outlook, citing budget deficit and less timely and effective reform policymaking. In December 2015, Moody’s placed Brazil’s Baa3 issuer and bond ratings on review for a downgrade, and subsequently downgraded Brazil’s issuer and bond ratings to below investment grade, to Ba2 with a negative outlook. In April 2018, Moody’s affirmed its Ba2 rating but changed its outlook from negative to stable, citing stabilization of macroeconomic conditions, signs of recovery in the economy, falling inflation rates and a clearer fiscal outlook as reasons for the change. Fitch Ratings Inc. (“Fitch”) downgraded Brazil’s sovereign credit rating to BB+ with a negative outlook in December 2015 and again to BB in May 2016, with a negative outlook. In February 2018, Fitch lowered its long term rating for Brazil’s sovereign credit from BB to BB-, with a stable outlook, which was reaffirmed on August 2018. As a result, Brazil lost its investment grade status with all three major rating agencies and, consequently, the trading prices of securities of the Brazilian debt and equity markets were negatively affected. If the Brazilian federal government is unable to gather the required support in the Brazilian Congress to pass additional specific reforms, the Brazilian sovereign rating could be further downgraded.

 

Any further downgrade of Brazil’s sovereign credit ratings could heighten investors’ perception of risk and, as a result, adversely affect the Brazilian economy and our operations.

 

The developing consequences of the Samarco dam failure may adversely affect us.

 

On November 5, 2015, the Samarco Mineração S.A. (“Samarco”) iron ore operations experienced a tailings dam failure that resulted in a release of mine tailings, flooding the communities of Bento Rodrigues, Gesteira and Paracatu and impacting other communities downstream and the environment of the Rio Doce basin. Samarco is a joint venture owned equally by BHP Billiton Brasil Limitada and Vale S.A.

 

The heightened awareness of mining impact particularly in Brazil following the Samarco and Brumadinho dam collapses in 2015 and 2019, respectively, as well as increased regulatory oversight may result in the amount and timing of future environmental and related expenditures to vary substantially from those currently anticipated. We may encounter delays in obtaining environmental and other operating licenses, or not be able to obtain and/or renew an authorization, permit

 

41

 

and/or license. These events and additional costs may have a negative impact on our operations and have an adverse effect on our financial performance.

 

The developing consequences of the Brumadinho dam failure may adversely affect us.

 

On January 25, 2019, the Córrego do Feijão mine owned by Vale S.A. experienced a tailings dam failure that resulted in a release of mine tailings, flooding the communities of Brumadinho and impacting other communities downstream and the environment of the Rio Paraopeba.

 

The heightened awareness of the potential impacts of mining activities following the Brumadinho dam failure as well as increased regulatory oversight may cause the amount and timing of future environmental and related expenditures to vary substantially from those currently anticipated and we may encounter delays in obtaining environmental and other operating licenses, or not be able to obtain and/or renew an authorization, permit and/or license. These events and additional costs may have a negative impact on our operations and have an adverse effect on our financial performance.

 

DIVIDENDS

 

The constating documents of the Company do not limit its ability to pay dividends on its Common Shares, however. The Company has not paid any dividends since incorporation. In addition, the payment of dividends in the future, if any, will be made at the discretion of the Board.

 

DESCRIPTION OF CAPITAL STRUCTURE

 

The authorized capital of the Company consists of an unlimited number of Common Shares. As of December 31, 2019 there were 554,533,286 Common Shares issued and outstanding. As of the date of this AIF, the Company had 562,975,760 Common Shares issued and outstanding, 2,946,700 Common Shares reserved for issuance for stock options granted to directors, officers, employees and consultants, 752,000 Common Shares reserved for issuance upon vesting of restricted share units (“RSU”), and approximately 104,593,000 Common Shares reserved for issuance upon the exercise of share purchase warrants.

 

Common Shares

 

Holders of Common Shares are entitled to receive notice of and to attend any meetings of shareholders and shall have one vote per share at all meetings, except meetings at which only holders of another class or series of shares are entitled to vote separately as such class or series. Holders of Common Shares are entitled to receive on a pro rata basis such dividends, if any, as and when declared by the Board and, upon liquidation, dissolution or winding up of the Company, are entitled to receive on a pro rata basis the net assets of the Company after payment of debts and other liabilities, in each case subject to the rights, privileges, restrictions and conditions attaching to any other series or class of shares ranking senior in priority to or on a pro rata basis with the holders of Common Shares. The Common Shares do not carry any pre-emptive, subscription, redemption or conversion rights, nor do they contain any sinking or purchase fund provisions.

 

Incentive Options

 

On June 29, 2017, shareholders adopted a 10% rolling share compensation plan under which the Company may issue RSUs, and options (“Options”) to purchase Common Shares. Unlike the Options, the RSUs do not require the payment of any monetary consideration to the Company. Instead, each RSU represents a right to receive one Common Share following the attainment of vesting criteria determined at the time of the award.

 

42

 

MARKET FOR SECURITIES

 

Trading Price and Volume

 

The Common Shares trade on the TSX under the symbol “LGO”. The table below shows the price ranges and volume of trading for each month of the financial year ended December 31, 2019 and for each month of the current financial year up to the date of this AIF.

 

Month

 

High($)

 

Low($)

 

Volume

 

(2020)

 

 

 

 

 

 

 

March (1- 16)

 

0.93

 

0.56

 

4,729,138

 

February

 

1.16

 

0.84

 

7,567,485

 

January

 

1.19

 

0.98

 

5,317,756

 

(2019)

 

 

 

 

 

 

 

December

 

1.21

 

0.92

 

19,037,933

 

November

 

1.34

 

0.81

 

9,548,146

 

October

 

1.51

 

1.31

 

9,929,844

 

September

 

1.75

 

1.33

 

6,720,384

 

August

 

1.91

 

1.33

 

16,630,296

 

July

 

1.99

 

1.64

 

12,750,206

 

June

 

2.01

 

1.51

 

14,319,578

 

May

 

1.99

 

1.45

 

24,786,510

 

April

 

2.19

 

1.52

 

31,686,958

 

March

 

2.55

 

1.95

 

37,856,025

 

February

 

2.86

 

2.09

 

12,492,018

 

January

 

3.27

 

2.48

 

22,830,138

 

 

DIRECTORS AND OFFICERS

 

The following table sets forth the name, province of residence and position held with the Company of each director and executive officer effective as of the date of this AIF. All directors hold office until the next annual meeting of shareholders of the Company or until their successors are elected or appointed.

 

Name and

 

Current Position(s) 

 

 

Residence

 

with the Company

 

Principal Occupation

Alberto Arias

 

Non-Executive Chair

 

Mr. Arias is the founder and Portfolio Manager of Arias Resource Capital Management LP and has over 25 years of experience in the field of international mining finance. Prior to founding Arias Resource Capital Management LP, Mr. Arias worked for eight years at Goldman, Sachs & Co., most recently acting as Managing Director and Head of Equity Research for metals and mining in the U.S., Canada and Latin America. Prior to Goldman Sachs, Mr. Arias worked for four years at UBS Warberg as Executive Director and Analyst covering the Latin American metals and mining sector.

Florida,

 

Director since: April 2011

 

United States

 

 

 

 

 

Committee Membership(s):

 

 

 

· Corporate Governance

 

 

 

· Compensation

 

 

 

· Sales

 

 

 

 

 

 

David Brace

 

Director since: June 26, 2012

 

Mr. Brace served as Chief Executive Officer and a director of Karmin Exploration Inc. from September 2011 to October 2019. Prior to this, and between January through September of 2011, Mr. Brace served as President of Lambton Capital Inc., a private investment firm focused on evaluating mining investments. Prior to this, Mr. Brace served as the CEO and a director of GlobeStar Mining Corporation until that company’s acquisition by Perilya

Ontario,

 

 

 

Canada

 

Committee Membership(s):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

43

 

Name and

 

Current Position(s) 

 

 

Residence

 

with the Company

 

Principal Occupation

 

 

· Corporate Governance
· Compensation
· Audit
· Operations

 

Limited in December of 2010. Prior to this, Mr. Brace served as Executive Vice-President of Business Development with Aur Resources until August of 2007.

 

 

 

 

 

Jonathan Lee
New York,
United States

 

Director since: April 4, 2019

 

Committee Membership(s):

· Operations
· Sales

 

Mr. Lee is a Vice President with the private equity firm Arias Resource Capital Management LP. Prior to Arias Resource Capital Management, Mr. Lee worked with Ambac Assurance Corporation, a global bond insurer. Prior to Ambac, Mr. Lee held positions with the investment firm Raging River Capital, the mining hedge fund Geologic Resource Partners LLC, and Byron Capital Markets Ltd. in Canada as a mining & metals equity research analyst. Additionally, Mr. Lee has prior experience as an Environmental Engineer with several construction and engineering firms. Mr. Lee previously sat on the boards of Park Lawn Company Ltd. and Bearing Lithium Corp. Mr. Lee earned his MBA from the Stern School of Business at New York University and holds a BS in Chemical Engineering with a minor in Economics from Tufts University.

 

 

 

 

 

 

 

 

 

 

Daniel Tellechea

 

Director since: July 9, 2015

 

Mr. Tellechea has business experience in Brazil and extensive experience in international mining, most recently serving as President & CEO of Sierra Metals, Inc. between 2007 and 2014, a Toronto based mining company listed on both the Toronto (TSX) and Lima (BVL) Stock Exchanges with assets in Mexico and Peru. Prior to Sierra Metals, Mr. Tellechea was President and CEO of Asarco LLC from 2003 to 2005, he served as the Managing Director of Finance and Administration for Asarco’s parent, Grupo Mexico from 1994 to 2003 and also served as Asarco’s Chief Financial Officer and Vice-president of finance for Southern Copper Corporation from 1999 to 2003, which was majority owned by Grupo Mexico.

Arizona,

 

 

 

United States

 

Committee Membership(s):

 

 

 

· Corporate Governance

 

 

 

· Compensation

 

 

 

· Audit

 

 

 

· Operations
· Sales

 

 

 

 

 

 

Koko Yamamoto

 

Director since: July 9, 2015

 

Ms. Yamamoto is a chartered professional accountant. She is a partner at McGovern Hurley LLP, a CPAB registered firm, since 2003 and her practice includes a focus on assurance engagements for reporting issuers in the resource sector. Ms. Yamamoto is involved in initial public offerings and private placements, mergers and acquisitions. Ms. Yamamoto is also registered as a panel auditor with the Investment Industry Regulatory Organization of Canada (IIROC), which enables her to conduct audits of investment dealers. Prior to joining McGovern Hurley LLP in 1998, Ms. Yamamoto worked for a start-up Japanese medical technology company, both in Tokyo and San Francisco.

Ontario,

 

 

 

Canada

 

Committee Membership(s):

 

 

 

· Compensation
· Audit

 

 

 

 

 

 

Paulo Misk
Minas Gerais,

Brazil

 

President & Chief Executive Officer

 

Director since: September 9, 2019

 

Mr. Misk is a mining engineer with over 28 years’ experience in operational management at mining facilities for various large multi-national mining companies across a wide range of commodities, including: niobium, chromite, iron, tin, gold, lithium and a range of other industrial minerals. Most recently, Mr. Misk ran Anglo American’s Catalão Project from 2011 to 2014 where he was promoted to Head of Niobium Operations after serving as Niobium General Manager for one year. During his tenure at the Catalão Project he was responsible for implementing innovative policies and fostering a high-performance culture that greatly improved production

 

44

 

Name and

 

Current Position(s) 

 

 

Residence

 

with the Company

 

Principal Occupation

 

 

 

 

rates and recoveries, as well as dramatically reduced unit costs resulting in a doubling of Niobium EBITDA. Mr. Misk’s prior experience includes several years as Talc Operational Director and as Geology, Mining Operation Manager for GP Investments’ Magnesita Refratátorios project in Brazil between 2002 and 2010. Additionally, he served as Operational Director for AMG Group where he managed their tantalum, niobium, tin, feldspar and lithium operations between 2010 and 2011. Between 1994 and 2002, Mr. Misk spent his earlier career with AMG Group as Industrial Minerals Manager after being promoted from Tantalum and Niobium Division Manager.

 

 

 

 

 

Ernest Cleave
Ontario,
Canada

 

Chief Financial Officer

 

Mr. Cleave is a financial professional with over 20 years’ experience in finance strategy, compliance, financial reporting, internal control and strategic planning. Prior to joining the Company, Mr. Cleave served as a director, CFO and corporate controller and in senior finance positions for large, multi-national companies in the mining, manufacturing and retail sectors, including Goldcorp Inc. and Falconbridge Limited. Mr. Cleave started his career with PricewaterhouseCoopers and holds a CA designation in both Australia and New Zealand, the CPA and CMA designations in Canada, the CPA and FIPA designations in Australia and the CIMA designation in the United Kingdom.

 

 

 

 

 

Luciano Chaves
Bahia,
Brazil

 

Vice President of Finance and Administration at Vanádio

 

Mr. Chaves has over 20 years of experience in financial management in a range of different industries. Prior to joining the Company, he led the finance department of multinational mining and services companies in Latin America, including Sibelco and Hewitt. Since joining the Company in 2011, his understanding of both domestic and international business environment has brought a differentiated contribution to the Maracás Menchen Mine.

 

Alberto Arias is the sole director of each of the general partners of Arias Resource Capital Fund L.P., Arias Resource Capital Fund II L.P. and Arias Resource Capital Fund II (Mexico) L.P. which, as at the date of this AIF, in aggregate hold 247,504,517 of our Common Shares representing approximately 43.96% of our outstanding Common Shares. Our remaining directors and executive officers, as a group, beneficially owned, directly or indirectly, or exercised control or direction over, 724,861 common shares, representing less than 1% of the total number of common shares outstanding.

 

Corporate Cease Trade Orders, Bankruptcies, Penalties or Sanctions

 

Other than as set forth below, no director, executive officer or chief financial officer of the Company:

 

(a)         is, as at the date of this document, or has been, within ten years before the date of this AIF, a director, chief executive officer or chief financial officer of any company (including the Company) that, while that person was acting in that capacity: (i) was the subject of a cease trade or similar order or an order that denied the relevant company access to any exemption under the securities legislation, for a period of more than 30 consecutive days; (ii) was subject to an event that resulted, after the director, chief executive officer or chief financial officer ceased to be a director, chief executive officer or chief financial officer, in the company being the subject of a cease trade order or similar order or an order that denied the relevant company access to any exemption under securities legislation, for a period of more than 30 consecutive days; or (iii) within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets, or

 

45

 

(b)         has, within the ten years before the date of this AIF, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the proposed director.

 

Except as set out below, no director or executive officer of the Company, or a shareholder holding sufficient number of securities of the Company to affect materially the control of the Company, has been subject to: (i) any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority; or (ii) any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor in making an investment decision.

 

From March 28, 2013 until January 21, 2014, Mr. Arias served as a director on the board of Colossus Minerals Inc. (“Colossus”). On January 14, 2014, Colossus filed a notice of intention to make a proposal under the Bankruptcy and Insolvency Act (Canada). Colossus was delisted from the TSX effective February 21, 2014.

 

Mr. Tellechea was a director of Mercator Minerals, Ltd. until September 4, 2014. Mercator filed a notice of intention to make a proposal under the Canadian Bankruptcy and Insolvency Act on August 26, 2014.

 

Conflicts of Interest

 

Certain of the Company’s directors and officers serve or may agree to serve as directors or officers of other reporting companies or have significant shareholdings in other reporting companies. For a list of the other reporting issuers in which directors of the Company also serve as directors, please see the most recent management information circular of the Company dated May 28, 2019. To the extent that such other companies may participate in ventures in which the Company may participate, the directors of the Company may have a conflict of interest in negotiating and concluding terms respecting the extent of such participation. In the event that such a conflict of interest arises at a meeting of the Company’s directors, a director who has such a conflict will step out of the room during discussions and abstain from voting for or against the approval of such participation or such terms. From time to time, several companies may participate in the acquisition, exploration and development of natural resource properties thereby allowing for their participation in larger programs, permitting involvement in a greater number of programs and reducing financial exposure in respect of any one program. It may also occur that a particular company will assign all or a portion of its interest in a particular program to another of these companies due to the financial position of the company making the assignment. Under the laws of Canada, the directors of the Company are required to act honestly, in good faith and in the best interests of the Company. In determining whether or not the Company will participate in a particular program and the interest therein to be acquired by it, the directors will primarily consider the degree of risk to which the Company may be exposed and its financial position at that time.

 

AUDIT COMMITTEE DISCLOSURE

 

The purposes of the audit committee of the Board of Directors (the “Audit Committee”) are to assist the Board of Directors’ oversight of: the integrity of the Company’s financial statements; the Company’s compliance with legal and regulatory requirements; the qualifications and independence of the Company’s independent auditors; and the performance of the independent auditors and the Company’s internal audit function.

 

National Instrument 52-110 — Audit Committees of the Canadian Securities Administrators (“NI 52-110”) governs composition and function of audit committees for every TSX listed company, including the Company. NI 52-110 requires the Company to have a written audit committee Charter and to make the disclosure required by Form 52-110F1, which includes disclosure of the text of the audit committee charter in the management information circular of the Company wherein management solicits proxies from the security holders of the Company for the purpose of electing directors to the Board.

 

46

 

Audit Committee Charter

 

The Board of Directors has developed a written Audit Committee charter (the “Charter”). A copy of the Charter is attached hereto as Schedule “B”.

 

Composition of the Audit Committee

 

The Audit Committee is comprised of three directors: Koko Yamamoto (Chair), David Brace and Daniel Tellechea. Each member of the Audit Committee is financially literate and Koko Yamamoto and Daniel Tellechea are independent, as such terms are defined in NI 52-110.

 

Relevant Education and Experience

 

For a description of the education and experience of each Audit Committee member that is relevant to the performance of his responsibilities as a member of the Audit Committee, see “Directors and Officers”.

 

Reliance on Certain Exemptions

 

At no time since the Company’s listing on the TSX in July, 2016 has the Company relied on either (a) an exemption in section 2.4 of NI 52-110 (De Minimus Non-audit Services); or (b) an exemption from NI 52-110, in whole or in part, granted under Part 8 (Exemptions) of NI 52-110. Prior to the Company’s listing on the TSX, it had relied on the exemption provided for in section 6.1 of NI 52-110, Part 5 (Reporting Obligations).

 

Audit Committee Oversight

 

At no time since the commencement of the Company’s most recently completed financial year has there been a recommendation of the Audit Committee to nominate or compensate an external auditor which was not adopted by the Board of Directors.

 

Pre-Approval Policies and Procedures

 

The Audit Committee has not adopted specific policies and procedures for the engagement of non-audit services.

 

Audit Fees

 

The Company appointed PricewaterhouseCoopers LLP, Chartered Professional Accountants, as its auditor. The PricewaterhouseCoopers LLP fees incurred by the Company, excluding expenses, in each of the last two fiscal years for audit services were $100,000 in 2019 and $95,000 in 2018.

 

The Company incurred fees of R$342,289 for the fiscal year ended December 31, 2019 relating to PricewaterhouseCoopers Brazil, external auditors of Vanádio in Brazil, R$296,000 for the fiscal year ended December 31, 2018.

 

The Company incurred fees of €15,000 for the fiscal year ended December 31, 2019 (Nil 2018) relating to PricewaterhouseCoopers Ireland, external auditors of Largo Ireland, in Ireland.

 

Audit-Related Fees

 

PricewaterhouseCoopers LLP fees incurred in each of the last two fiscal years for assurance and related services related to the performance of the auditor’s review for the Company’s financial statements not included in audit fees above were $45,000 in 2019 and $45,000 in 2018.

 

47

 

Tax Fees

 

PricewaterhouseCoopers LLP fees incurred in each of the last two fiscal years for professional tax services rendered were $144,925 in 2019 and $146,455 in 2018. The professional tax services related to corporate tax compliance, tax planning and other related tax services.

 

PricewaterhouseCoopers Brazil billed Vanádio R$43,837 in the fiscal year ending December 31, 2019 and R$58,467 in the fiscal year ending December 31, 2018 for tax compliance in Brazil.

 

PricewaterhouseCoopers Ireland billed Largo Ireland €31,000 in the fiscal year ending December 31, 2019 (Nil 2018) for tax advisory services in Ireland.

 

All Other Fees

 

PricewaterhouseCoopers LLP fees incurred in each of the last two fiscal years for other advisory services rendered were $20,500 in 2019 and $221,900 in 2018.

 

LEGAL PROCEEDINGS AND REGULATORY ACTIONS

 

Except as disclosed below, to the best of the Company’s knowledge, there were no legal proceedings during the year ended December 31, 2019 to which the Company was a party or of which any of the Company’s property was subject that would have had a material adverse effect on the Company, nor are there any such legal proceedings existing or contemplated to which the Company is a party or of which any of the Company’s property is subject that would have a material adverse effect on the Company.

 

There have been no penalties or sanctions imposed against the Company by a court relating to securities legislation or by a securities regulatory authority during the fiscal year ended December 31, 2019, or any other time that would likely be considered important to a reasonable investor making an investment decision in the Company. The Company has not entered into any settlement agreements with a court relating to securities legislation or with a securities regulatory authority during the fiscal year ended December 31, 2019.

 

INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS

 

No director or executive officer of the Company or any person or company who or that beneficially owns, or controls or directs, directly or indirectly, more than 10% of the Company’s Common Shares (or any associate of affiliate of that person or company) has had any direct or indirect material interest in any transaction involving the Company since January 1, 2017 to the date hereof, or in any proposed transaction which has materially affected or would materially affect the Company or its subsidiaries other than as disclosed herein and as referenced below:

 

·                  January 2017 Financing - participation by the Arc Funds and CIH (see “General Development of the Business — Three Year History — Equity Financings”); and

 

·                  December 2017 Financing - participation by the Arc Funds and CIH (see “General Development of the Business — Three Year History — Equity Financings”).

 

TRANSFER AGENT AND REGISTRAR

 

The Company’s transfer agent is TSX Trust Company which is located in Toronto, Ontario.

 

48

 

MATERIAL CONTRACTS

 

Except for contracts entered into by the Company in the ordinary course of business or otherwise disclosed herein, the only material contracts entered into during the financial year ended December 31, 2019, or which remain in effect can reasonably be regarded as presently material are:

 

·                  Governance Agreement, see “Glossary”;

 

·                  Director Nomination Agreement, see “Glossary”; and

 

·                  Offtake Agreement, see “Description of the Business — Marketing and Distribution”.

 

INTERESTS OF EXPERTS

 

Porfírio Cabaleiro Rodriguez, Mining Engineer, BSc (Mine Eng), MAIG employed by GE21, Leonardo Apparicio da Silva, Mining Engineer, BSc (Min Eng), MSc (Met Eng), MAIG associated to GE21, and Fabio Valerio Xavier, Geologist,BSc , Geol, MAIG associated to GE21, were the authors of the Technical Report — see “Description of the Business - Material Project  — Maracás Menchen Mine “.

 

To the knowledge of the Company, none of the aforementioned individuals had an interest in any securities or other properties of the Company, its associates or affiliates as at the date the individual prepared the applicable report or as at the date hereof, and none of the aforementioned individuals holds any other interest in the assets of the Company nor do they expect to receive such an interest.

 

PricewaterhouseCoopers LLP, Chartered Professional Accountants, are the auditors of the Company and have performed the audit in respect of the audited annual consolidated financial statements of the Company for the years ended December 31, 2019 and December 31, 2018. PricewaterhouseCoopers LLP, Chartered Professional Accountants were independent of the Company in accordance with the applicable rules of professional conduct.

 

ADDITIONAL INFORMATION

 

Additional information, including directors’ and officers’ remuneration and indebtedness, principal holders of the Company’s securities, and securities authorized for issuance under the Company’s stock option plan is contained in the management information circular of the Company dated May 28, 2019.

 

Additional financial information is provided in the Company’s annual consolidated financial statements and management’s discussion and analysis for the year ended December 31, 2019. These documents and other information about the Company can be found on SEDAR under the Company’s profile at www.sedar.com.

 

49

 

SCHEDULE A
GLOSSARY

 

“AIF”

 

means this annual information form.

 

 

 

“ARC Funds”

 

means, collectively, Arias Resource Capital Fund LP, Arias Resource Capital Fund II LP, and Arias Resource Capital Fund II (Mexico) LP.

 

 

 

“Audit Committee”

 

means the audit committee of the Board.

 

 

 

“Banks”

 

means, collectively, Banco Itau BBA S.A., Banco Votorantim S.A. and Banco Bradesco S.A.

 

 

 

“BNDES”

 

means the Brazilian Development Bank or Banco Nacional do Desenvolvimento.

 

 

 

“BNDES Facility”

 

means the agreement with BNDES for a R$333 million (approximately US$166 million equivalent) debt financing facility for the construction and development of the Maracás Menchen Mine.

 

 

 

“BNDES Facilities”

 

means, collectively, the (i) debt financing facility, dated as of June 22, 2012, by and between Vanádio and BNDES, as amended, restated, supplemented or otherwise modified from time to time; (ii) the debt facility, dated as of February 29, 2016, by and between the Company and the Consortium, as amended, restated, supplemented or otherwise modified from time to time, (iii) the debt facility, dated as of December 23, 2016, by and between the Company and the Consortium, as amended, restated, supplemented or otherwise modified from time to time, and (iv) the export credit facilities by and among Vanádio, Votorantim S.A. and Banco Itaú BBA S.A.

 

 

 

“Board”

 

means the board of directors of the Company.

 

 

 

“Campbell Pit”

 

refers to the main vanadium deposit, the Campbell deposit, of the Maracás Menchen Mine.

 

 

 

“Campo Alegre Project”

 

means the Campo Alegre de Lourdes iron-titanium-vanadium exploration project in Brazil.

 

 

 

“CDI”

 

means certificado de deposito interbancario and is the Brazilian interbank rate. CDI is updated daily and calculated by CETIP and the rate on March 13, 2019 was 6.04%.

 

 

 

“CIH”

 

Cranley Investments Holdings LCC.

 

 

 

“Common Shares”

 

means the common shares in the capital of the Company.

 

 

 

“Currais Novos Project”

 

means the Currais Novos tungsten tailings project in Rio Grande De Norte, Brazil.

 

 

 

“Director Nomination Agreement”

 

means the amended and restated director nomination agreement entered into between the Company and ARC Funds in May 2015, as amended and restated March 2016, enabling them to designate (a) a total of three (3) additional persons to be nominated for election to Largo’s Board for election by Largo shareholders for so long as the ARC Funds, whether individually or together, own at least 50% of the issued and outstanding Common Shares, (b) a total of two (2) additional persons to be nominated for election to Largo’s Board for election by Largo shareholders for so long as the ARC Funds, whether individually or together, own less than 50% but not less than 40% of the issued and outstanding Common Shares, and (c) a total of one (1) additional person to be nominated for election to Largo’s Board for election by Largo shareholders, for so long as the ARC Funds, whether individually or together, own less than 40% but not less than 20% of the issued and outstanding Common Shares. These nomination rights

 

A-1

 

 

 

are supplemented the ARC Funds’ existing right to nominate one (1) director to the Board under the Governance Agreement.

 

 

 

“Expansion”

 

means the Company’s planned expansion of the Maracás Menchen Mine to increase production capacity from the nameplate rate of approximately 800 t month of V2O5 to 1,000 t/month, being an increase of 25% over nameplate capacity.

 

 

 

“feasibility study”

 

is a comprehensive technical and economic study of the selected development option for a mineral project that includes appropriately detailed assessments of applicable Modifying Factors together with any other relevant operational factors and detailed financial analysis that are necessary to demonstrate, at the time of reporting, that extraction is reasonably justified (economically mineable). The results of the study may reasonably serve as the basis for a final decision by a proponent or financial institution to proceed with, or finance, the development of the project. The confidence level of the study will be higher than that of a Pre Feasibility Study.

 

 

 

“FeV”

 

means Ferrovanadium, an alloy formed by combining iron (Fe) and vanadium (V).

 

 

 

“Governance Agreement”

 

means the amended and restated investor nomination rights and governance agreement, made as of the 9th day of March, 2012, by the Company and the Lead Investors pursuant to which the Lead Investors are each entitled, among other things, to nominate one director to the Board so long as their holding of Common Shares represents no less than 10% of the issued and outstanding Common Shares.

 

 

 

“Indicated Mineral Resource”

 

is that part of a Mineral Resource for which quantity, grade or quality, densities, shape and physical characteristics are estimated with sufficient confidence to allow the application of Modifying Factors in sufficient detail to support mine planning and evaluation of the economic viability of the deposit. Geological evidence is derived from adequately detailed and reliable exploration, sampling and testing and is sufficient to assume geological and grade or quality continuity between points of observation. An Indicated Mineral Resource has a lower level of confidence than that applying to a Measured Mineral Resource and may only be converted to a Probable Mineral Reserve.

 

 

 

“INEMA”

 

means Instituto do Meio Ambiente e Recursos Hídricos.

 

 

 

“Inferred Mineral Resource”

 

is that part of a Mineral Resource for which quantity and grade or quality are estimated on the basis of limited geological evidence and sampling. Geological evidence is sufficient to imply but not verify geological and grade or quality continuity. An Inferred Mineral Resource has a lower level of confidence than that applying to an Indicated Mineral Resource and must not be converted to a Mineral Reserve. It is reasonably expected that the majority of Inferred Mineral Resources could be upgraded to Indicated Mineral Resources with continued exploration.

 

 

 

“kg”

 

means kilogram.

 

 

 

“km”

 

means kilometer.

 

 

 

“kt”

 

thousand tonnes.

 

 

 

“Lead Investors”

 

means ARC Funds, EP Cayman Ltd., Eton Park Master Fund, Ltd. and Ashmore Cayman SPC No. 2 Limited.

 

 

 

“m”

 

means meter.

 

A-2

 

“Maracás Menchen Mine”

 

means the Maracás vanadium mine in Bahia State, Brazil, later renamed the Maracás Menchen Mine, which includes the Campbell Pit and the Ford Facility.

 

 

 

“Maracás Project”

 

means the vanadium deposit property in the municipality of Maracás in eastern Bahia State, Brazil.

 

 

 

“March 2016 Financing”

 

means the non-brokered private placement offering of an aggregate of 209,392,178 units at a price of $0.175 per unit for aggregate gross proceeds of approximately $36.6 million, completed in March 2016. Each unit was comprised of one Common Share and one-half of one Common Share purchase warrant, with each whole warrant entitling the holder thereof to acquire one Common Share at a price of $0.29 per share for a period of five years from the date of issuance.

 

 

 

“Measured Mineral Resource”

 

is that part of a Mineral Resource for which quantity, grade or quality, densities, shape, and physical characteristics are estimated with confidence sufficient to allow the application of Modifying Factors to support detailed mine planning and final evaluation of the economic viability of the deposit. Geological evidence is derived from detailed and reliable exploration, sampling and testing and is sufficient to confirm geological and grade or quality continuity between points of observation. A Measured Mineral Resource has a higher level of confidence than that applying to either an Indicated Mineral Resource or an Inferred Mineral Resource. It may be converted to a Proven Mineral Reserve or to a Probable Mineral Reserve.

 

 

 

“Mineral Reserve”

 

is the economically mineable part of a Measured and/or Indicated Mineral Resource. It includes diluting materials and allowances for losses, which may occur when the material is mined or extracted and is defined by studies at Pre Feasibility or Feasibility level as appropriate that include application of Modifying Factors. Such studies demonstrate that, at the time of reporting, extraction could reasonably be justified. The reference point at which Mineral Reserves are defined, usually the point where the ore is delivered to the processing plant, must be stated. It is important that, in all situations where the reference point is different, such as for a saleable product, a clarifying statement is included to ensure that the reader is fully informed as to what is being reported. The public disclosure of a Mineral Reserve must be demonstrated by a Pre Feasibility Study or Feasibility Study.

 

 

 

“Mineral Resource”

 

is a concentration or occurrence of solid material of economic interest in or on the Earth’s crust in such form, grade or quality and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, grade or quality, continuity and other geological characteristics of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge, including sampling.

 

 

 

“Modifying Factors”

 

are considerations used to convert Mineral Resources to Mineral Reserves. These include, but are not restricted to, mining, processing, metallurgical, infrastructure, economic, marketing, legal, environmental, social and governmental factors.

 

 

 

“NAN”

 

Novo Amparo Norte.

 

 

 

“Near Mine Targets” or “NMT”

 

has the meaning given to that term under heading “Description of Mineral Properties — The Maraçãs Menchen Mine”.

 

 

 

“NI 43-101”

 

means the Canadian Securities Administrators National Instrument 43-101 — Standards of Disclosure for Mineral Projects.

 

 

 

“Northern Dancer Project”

 

means the tungsten-molybdenum deposit property in Yukon Territory, Canada.

 

A-3

 

“October 2016 Financing”

 

means the non-brokered private placement offering of 11,111,111 units at a price of $0.45 per unit for aggregate gross proceeds of $5 million, completed in October 2016. Each unit was comprised of one Common Share and one-half of one Common Share purchase warrant, with each whole warrant entitling the holder thereof to purchase one Common Share at a price of $0.65 per share for a period of three years from the date of issuance. The ARC Funds purchased 6,228,232 units and CIH acquired 555,555 units.

 

 

 

“Offtake Agreement”

 

means the offtake agreement dated May 13, 2008 with Glencore International AG pursuant to which the Company has agreed to sell in U.S. dollars to Glencore, and Glencore agreed to acquire, 100% of the V2O5 production at the Maracás Menchen Mine. The Offtake Agreement will terminate effective April 30, 2020. See “Description of the Business — Marketing and Distribution”.

 

 

 

“PEA”

 

has the meaning given to that term under heading “Description of Mineral Properties — The Maraçãs Menchen Mine”.

 

 

 

“Pine Facility”

 

means a US$3.85 million short term loan facility entered into on March 2, 2016 with Banco Pine to roll over its then existing credit facility.

 

 

 

“Pre Feasibility Study”

 

is a comprehensive study of a range of options for the technical and economic viability of a mineral project that has advanced to a stage where a preferred mining method, in the case of underground mining, or the pit configuration, in the case of an open pit, is established and an effective method of mineral processing is determined. It includes a financial analysis based on reasonable assumptions on the Modifying Factors and the evaluation of any other relevant factors which are sufficient for a Qualified Person, acting reasonably, to determine if all or part of the Mineral Resource may be converted to a Mineral Reserve at the time of reporting. A Pre Feasibility Study is at a lower confidence level than a Feasibility Study.

 

 

 

“Probable Mineral Reserve”

 

is the economically mineable part of an Indicated, and in some circumstances, a Measured Mineral Resource. The confidence in the Modifying Factors applying to a Probable Mineral Reserve is lower than that applying to a Proven Mineral Reserve.

 

 

 

“Proven Mineral Reserve”

 

is the economically mineable part of a Measured Mineral Resource. A Proven Mineral Reserve implies a high degree of confidence in the Modifying Factors.

 

 

 

“tonnes” or “t”

 

means metric tonnes, where 1 tonne = 1,000 kg.

 

 

 

“t/a”

 

means tonnes per annum (year).

 

 

 

“Technical Report”

 

has the meaning given to that term under heading “Description of Mineral Properties — The Maraçãs Menchen Mine”.

 

 

 

“TSX”

 

means the Toronto Stock Exchange.

 

 

 

“V2O5”

 

means vanadium pentoxide, the form vanadium is, generally, converted to following extraction.

 

 

 

“Vanádio”

 

means Vanádio de Maracás S.A., a subsidiary of the Company.

 

 

 

“Vanádio’s Pine Facility”

 

means an up to R$80 million credit facility entered into on March 2, 2016 between Vanádio and Banco Pine, which facility was ultimately repaid in December 2017 pursuant to the Banco Pine Debt Settlement.

 

 

 

“vanadium”

 

vanadium is a naturally occurring chemical element with the symbol “V” and atomic number 23. It is a hard, silvery-grey, ductile, malleable transition metal.

 

A-4

 

“VPURE Flakes”

 

V2O5 flakes, have a guaranteed vanadium content of 98.5% and typical vanadium content of 99.0%.

 

 

 

“VPURE+ Flakes”

 

high purity V2O5 flakes, have a guaranteed vanadium content of 99.0% and a typical vanadium content of 99.9%.

 

 

 

“VPURE+ Powder”

 

V2O5 powder, has a guaranteed vanadium content of 99.0% and a typical vanadium content of 99.9%.

 

References to various elements, where not defined above, have the meaning given to them in the periodic table which is available in the public domain.

 

A-5

 

SCHEDULE B
AUDIT CHARTER

 

CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

 

Largo Resources Ltd.

 

Audit Committee Charter

 

This charter (the “Charter”) sets forth the purpose, composition, responsibilities, duties, powers and authority of the Audit Committee (the “Committee”) of the Board of Directors (the “Board”) of Largo Resources Ltd. (“Largo”).

 

1.                                      PURPOSE

 

1.1                               The purpose of the Committee is to assist the Board in fulfilling its oversight responsibilities with respect to:

 

·                                          financial reporting and disclosure requirements;

 

·                                          ensuring that an effective risk management and financial control framework has been implemented and tested by management of Largo; and

 

·                                          external and internal audit processes.

 

2.                                      COMPOSITION AND MEMBERSHIP

 

2.1                               The Board will appoint the members (“Members”) of the Committee after the annual general meeting of shareholders of Largo. The Members will be appointed to hold office until the next annual general meeting of shareholders of Largo or until their successors are appointed. The Board may remove a Member at any time and may fill any vacancy occurring on the Committee. A Member may resign at any time and a Member will cease to be a Member upon ceasing to be a director.

 

2.2                               The Committee will consist of at least three directors, all of who meet the criteria for financial literacy and who meet the criteria for independence established by applicable laws and the rules of the stock exchange upon which Largo’s securities are listed, including Multilateral Instrument 52-110 - Audit Committees. In addition, each director will be free of any relationship which could, in the view of the Board, reasonably interfere with the exercise of a member’s independent judgment.

 

2.3                               The Board will appoint one of the Members to act as the Chairperson of the Committee. The secretary of Largo (the “Corporate Secretary”) will be the secretary of all meetings and will maintain minutes of all meetings and deliberations of the Committee. In the absence of the Corporate Secretary at any meeting, the Committee will appoint another person who may, but need not, be a Member to be the secretary of that meeting.

 

3.                                      MEETINGS

 

3.1                               Meetings of the Committee will be held at such times and places as the Chairperson may determine, but in any event not less than four (4) times per year. Twenty-four (24) hours advance notice of each meeting will be given to each Member orally, by telephone, by facsimile or email, unless all Members are present and waive notice, or if those absent waive notice before or after a meeting. Members may attend all meetings either in person or by conference call.

 

3.2                               At the request of the external auditors of Largo, the Chief Executive Officer or the Chief Financial Officer of Largo or any member of the Committee, the Chairperson will convene a meeting of the Committee. Any such request will set out in reasonable detail the business proposed to be conducted at the meeting so requested.

 

B-1

 

3.3                               The Chairperson, if present, will act as the Chairperson of meetings of the Committee. If the Chairperson is not present at a meeting of the Committee, then the Members present may select one of their number to act as Chairperson of the meeting.

 

3.4                               Two Members will constitute a quorum for a meeting of the Committee. Each Member will have one vote and decisions of the Committee will be made by an affirmative vote of the majority. The Chairperson will not have a deciding or casting vote in the case of an equality of votes. Powers of the Committee may also be exercised by written resolution signed by all Members.

 

3.5                               The Committee may invite from time to time such persons as it sees fit to attend its meetings and to take part in the discussion and consideration of the affairs of the Committee. The Committee will meet in camera without management at each meeting of the Committee.

 

3.6                               In advance of every regular meeting of the Committee, the Chairperson, with the assistance of the Corporate Secretary, will prepare and distribute to the Members and others, as deemed appropriate by the Chairperson, an agenda of matters to be addressed at the meeting together with appropriate briefing materials. The Committee may require officers and employees of Largo to produce such information and reports as the Committee may deem appropriate in order to fulfill its duties.

 

4.                                      DUTIES AND RESPONSIBILITIES

 

4.1                               The duties and responsibilities of the Committee as they relate to the following matters are to:

 

Financial Reporting and Disclosure

 

4.2                               Review and recommend to the Board for approval, the audited annual financial statements, including the auditors’ report thereon, the quarterly financial statements, management discussion and analysis, financial reports, guidance with respect to earnings per share, and any public release of financial information through press release or otherwise, with such documents to indicate whether such information has been reviewed by the Board or the Committee;

 

4.3                               Review and recommend to the Board for approval, where appropriate, financial information contained in any prospectus, annual information form, annual report to shareholders, management proxy circular, material change disclosure of a financial nature, and similar disclosure documents;

 

4.4                               Review with management of Largo and with external auditors significant accounting principles and disclosure issues and alternative treatments under International Financial Reporting Standards (“IFRS”), all with a view to gaining reasonable assurance that financial statements are accurate, complete and present fairly Largo’s financial position and the results of its operations in accordance with IFRS, as applicable.

 

4.5                               Annually review Largo’s corporate disclosure policy and recommend any proposed changes to the Board for consideration.

 

4.6                               Review the minutes from each meeting of the disclosure committee, established pursuant to Largo’s corporate disclosure policy, since the last meeting of the Committee.

 

4.7                               Review and assess the adequacy and effectiveness of Largo’s system of internal control and management information systems through discussions with management and the external auditor to ensure that Largo maintains:

 

a)                                (the necessary books, records and accounts in sufficient detail to accurately and fairly reflect Largo’s transactions;

 

b)                                effective internal control systems; and

 

B-2

 

c)                                 adequate processes for assessing the risk of material misstatement of the financial statements and for detecting control weaknesses or fraud. From time to time the Committee will assess whether a formal internal audit department is necessary or desirable having regard to the size and stage of development of Largo at any particular time.

 

4.8                               Satisfy itself that management has established adequate procedures for the review of Largo’s disclosure of financial information extracted or derived from Largo’s financial statements.

 

4.9                               Satisfy itself that management has periodically assessed the adequacy of internal controls, systems and procedures in order to ensure compliance with regulatory requirements and recommendations.

 

4.10                        Review and discuss Largo’s major financial risk exposures and the steps taken to monitor and control such exposures, including the use of any financial derivatives and hedging activities.

 

4.11                        Review and assess, and in the Committee’s discretion make recommendations to the Board regarding, the adequacy of Largo’s risk management policies and procedures with regard to identification of Largo’s principal risks and implementation of appropriate systems to manage such risks, including an assessment of the adequacy of insurance coverage maintained by Largo.

 

4.12                        Review and assess annually, and in the Committee’s discretion make recommendations to the Board regarding Largo’s investment policy.

 

External Audit

 

4.13                        Recommend to the Board a firm of external auditors to be engaged by Largo.

 

4.14                        Ensure the external auditors report directly to the Committee on a regular basis.

 

4.15                        Review the independence of the external auditors, including a written report from the external auditors respecting their independence and consideration of applicable auditor independence standards.

 

4.16                        Review and approve the fee, scope and timing of the audit and other related services rendered by the external auditors.

 

4.17                        Review the audit plan of the external auditors prior to the commencement of the audit.

 

4.18                        Establish and maintain a direct line of communication with Largo’s external and internal auditors.

 

4.19                        Meet in camera with only the auditors, with only management, and with only the members of the Committee.

 

4.20                        Review the performance of the external auditors who are accountable to the Committee and the Board as representatives of the shareholders, including the lead partner of the independent auditor’s team.

 

4.21                        Oversee the work of the external auditors appointed by the shareholders of Largo with respect to preparing and issuing an audit report or performing other audit, review or attest services for Largo, including the resolution of issues between management of Largo and the external auditors regarding financial disclosure.

 

4.22                        Review the results of the external audit and the report thereon including, without limitation, a discussion with the external auditors as to the quality of accounting principles used, any alternative treatments of financial information that have been discussed with management of Largo, and the ramifications of their use as well as any other material changes. Review a report describing all material written communication between management and the auditors such as management letters and schedule of unadjusted differences.

 

B-3

 

4.23                        Discuss with the external auditors their perception of Largo’s financial and accounting personnel, records and systems, the cooperation which the external auditors received during their course of their review, and availability of records, data and other requested information and any recommendations with respect thereto.

 

4.24                        Review the reasons for any proposed change in the external auditors which is not initiated by the Committee or Board and any other significant issues related to the change, including the response of the incumbent auditors, and enquire as to the qualifications of the proposed auditors before making its recommendations to the Board.

 

4.25                        Review annually a report from the external auditors in respect of their internal quality-control procedures, any material issues raised by the most recent internal quality-control review, or peer review of the external auditors, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the external auditors, and any steps taken to deal with any such issues.

 

Associated Responsibilities

 

4.26                        Monitor and periodically review the whistleblower policy and associated procedures for:

 

a)                                the receipt, retention and treatment of complaints received by Largo regarding accounting, internal accounting controls or auditing matters;

 

b)                                the confidential, anonymous submission by directors, officers and employees of Largo of concerns regarding questionable accounting or auditing matters; and

 

c)                                 any violations of any applicable law, rule or regulation that relates to corporate reporting and disclosure, or violations of Largo’s Code of Business Conduct & Ethics or governance policies.

 

4.27                        Review and approve Largo’s hiring policies regarding employees and partners, and former employees and partners, of the present and former external auditor of Largo.

 

Non-Audit Services

 

4.26                        Pre-approve all non-audit services to be provided to Largo or any subsidiary entities by its external auditors or by the external auditors of such subsidiary entities. The Committee may delegate to one or more of its members the authority to pre-approve non-audit services but pre-approval by such member or members so delegated shall be presented to the full audit committee at its first scheduled meeting following such pre-approval.

 

Oversight Function

 

4.27                        While the Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Committee to plan or conduct audits or to determine that Largo’s financial statements are complete and accurate or are in accordance with IFRS and applicable rules and regulations. These are the responsibilities of Management and the external auditors. The Committee, the Chairperson and any Members identified as having accounting or related financial expertise are members of the Board, appointed to the Committee to provide broad oversight of the financial, risk and control related activities of Largo, and are specifically not accountable or responsible for the day to day operation or performance of such activities. Although the designation of a Member as having accounting or related financial expertise for disclosure purposes is based on that individual’s education and experience, which that individual will bring to bear in carrying out his or her duties on the Committee, such designation does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the Committee and Board in the absence of such designation. Rather, the role of a Member who is identified as having accounting or related financial expertise, like the role of all Members, is to oversee the process, not to certify or guarantee the internal or external audit of Largo’s financial information or public disclosure.

 

B-4

 

5.                                      REPORTING

 

5.1                               The Chairperson will report to the Board at each Board meeting on the Committee’s activities since the last Board meeting. The Committee will annually review and approve the Committee’s report for inclusion in the management proxy circular. The Corporate Secretary will circulate the minutes of each meeting of the Committee to the members of the Board.

 

6.                                      ACCESS TO INFORMATION AND AUTHORITY

 

6.1                               The Committee will be granted unrestricted access to all information regarding Largo and all directors, officers and employees will be directed to cooperate as requested by members of the Committee. The Committee has the authority to retain, at Largo’s expense, independent legal, financial and other advisors, consultants and experts, to assist the Committee in fulfilling its duties and responsibilities. The Committee also has the authority to communicate directly with internal and external auditors.

 

7.                                      REVIEW OF CHARTER

 

7.1                               The Committee will annually review and assess the adequacy of this Charter and recommend any proposed changes to the Board for consideration.

 

B-5

Exhibit 99.5

 

GRAPHIC

 

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

FOR THE YEAR ENDED DECEMBER 31, 2019

 

 

TABLE OF CONTENTS

 

To Our Shareholders

1

 

 

The Company

1

 

 

2019 Highlights

1

 

 

Significant Events and Transactions Subsequent To 2019

2

 

 

2019 Summary

2

 

 

Selected Quarterly Information

7

 

 

Operations

8

 

 

Financial Instruments

14

 

 

Liquidity And Capital Resources

14

 

 

Outstanding Share Data

16

 

 

Transactions With Related Parties

17

 

 

Commitments And Contingencies

17

 

 

Disclosure Controls And Procedures And Internal Controls Over Financial Reporting

18

 

 

Significant Accounting Judgments, Estimates And Assumptions

19

 

 

Changes In Accounting Policies

19

 

 

Non-GAAP Measures

19

 

 

Risks And Uncertainties

23

 

 

Cautionary Statement Regarding Forward-Looking Information

23

 

 

TO OUR SHAREHOLDERS

 

The following Management’s Discussion and Analysis (“MD&A”) relates to the financial condition and results of operations of Largo Resources Ltd. (“we”, “our”, “us”, “Largo”, or the “Company”) for the year ended December 31, 2019 (“2019”) and should be read in conjunction with the annual consolidated financial statements and related notes for the same period. References in the below discussion refer to the note disclosures contained in the annual consolidated financial statements for the years ended December 31, 2019 and 2018 (“2019 annual consolidated financial statements”). References in the below discussion to “Q4 2019” and “Q4 2018” refer to the three months ended December 31, 2019 and December 31, 2018 and references to “2018” refer to the year ended December 31, 2018.

 

The financial statements and related notes of Largo have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued as issued by the International Accounting Standards Board (“IASB”) applicable to a going concern. Certain non-GAAP measures are discussed in this MD&A, which are clearly disclosed as such. Additional information, including our press releases, has been filed electronically through the System for Electronic Document Analysis and Retrieval (“SEDAR”) and is available online under our profile at www.sedar.com.

 

This MD&A reports our activities through March 20, 2020, unless otherwise indicated. References to “date of this MD&A” mean March 20, 2020. References to the symbol “R$” mean the Real, the official currency of Brazil.  References to the symbol “US$” mean the U.S. dollar.  Except as otherwise set out herein, all amounts expressed herein are in thousands of Canadian dollars, denominated by “$”. The Company’s shares, options, units and warrants are expressed in thousands. Prices are not expressed in thousands.

 

Mr. Paul Sarjeant B.Sc. P.Geo., is a Qualified Person as defined under National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”) and has reviewed the technical information in the MD&A. Mr. Sarjeant is Manager, Geology of the Company. Refer to the Operations section of this MD&A for details of the Qualified Persons involved in reviewing the updated reserves and resources at the Company’s Maracás Menchen Mine.

 

THE COMPANY

 

Largo is a Canadian natural resource company organized and existing under the Business Corporations Act (Ontario). Largo is listed on the Toronto Stock Exchange (“TSX”), with a vanadium mine and vanadium and tungsten projects in Brazil and Canada. In Brazil, Largo owns the Maracás Menchen Mine and has secondary projects with the Currais Novos tungsten tailings project and the Campo Alegre de Lourdes iron-vanadium project. In Canada, Largo has a project at the Northern Dancer tungsten-molybdenum property, located in the Yukon Territory. The Company is dedicated to the operation and expansion of the Maracás Menchen Mine and predominantly all of the Company’s activities are focused on this mine.

 

2019 HIGHLIGHTS

 

·                  The Company’s Maracás Menchen Mine produced a record 10,577 tonnes of vanadium pentoxide (“V2O5”) in 2019, including a new quarterly production record of 3,011 tonnes of V2O5 produced in Q4 2019 and a new monthly production record of 1,162 tonnes of V2O5 produced in December 2019.

 

·                  The Company’s cash balance at December 31, 2019 was $166,077.

 

·                  The Company recorded a net loss before tax of $31,259 for 2019 and a net loss of $36,212 after the recognition of an income tax expense of $1,144 and a deferred income tax expense of $3,809.

 

·                  On July 8, 2019, the Company completed the redemption of all of its remaining outstanding Notes, following which the Company was debt free. Refer to note 11 for full details of the Notes redemptions.

 

·                  On January 10, 2019, the Company announced that Mr. Alberto Beeck had resigned as a member of the Company’s Board of Directors with immediate effect.

 

·                  On February 7, 2019, the Company announced that it had filed a final base shelf prospectus (the “Shelf Prospectus”).  The Shelf Prospectus will allow the Company and certain of its security holders to qualify the distribution by way of prospectus of up to $750,000 of common shares, debt securities, subscription receipts,

 

Management’s Discussion and Analysis for the Year Ended December 31, 2019

 

1

 

warrants and units or any combination thereof, during the 25-month period that the Shelf Prospectus remains effective.

 

·                  On February 25, 2019, the Company announced the resignation of an Arias Resource Capital Management LP (the “ARC Funds”) nominee director, Mr. Sam Abraham, from the Board of Directors of the Company.

 

·                  On April 4, 2019, the Company announced the appointment of Mr. Jonathan Lee to the Board of Directors of the Company as a nominee of the ARC Funds.

 

·                  On June 11, 2019, the Company announced an updated mineral resource for the Novo Amparo Norte deposit at the Maracás Menchen Mine. The updated resource includes total measured and indicated resources of 12.23 million tonnes grading 0.88% V2O5 with magnetic concentrate grades of 2.41% V2O5 and inferred mineral resources of 11.33 million tonnes grading 0.90% V2O5 with magnetic concentrate grades of 2.46% V2O5.

 

·                  On August 15, 2019, the Company announced that it had released its inaugural environmental, social and governance report, demonstrating the Company’s commitment to transparency with all stakeholders.

 

·                  On August 20, 2019, the Company announced that it had formally given notice to Glencore International AG of the nonrenewal of its off-take agreement dated May 14, 2008. In accordance with this notice, the off-take agreement will expire effective April 30, 2020.

 

·                  On September 9, 2019 the Company announced that on September 8, 2019, Mr. Paulo Misk had been promoted to President and Chief Executive Officer following the departure of Mr. Mark Smith as Chief Executive Officer and Director, and that J. Alberto Arias had been named as the non-executive Chair of the Company’s Board of Directors.

 

·                  On December 4, 2019, the Company announced the renewal of its Superintendência do Desenvolvimento do Nordeste (“SUDENE”) tax incentive which extends the Company’s current Brazilian tax rate of 15.25% to December 2028. The Company’s current SUDENE tax incentive was granted in January 2015 for a period of ten years on annual production of 9,636 tonnes of V2O5 and reduces its effective Brazilian tax rate from 34.00% to 15.25%. This has been extended to December 2028 under the renewed incentive and applies to production of up to 13,260 tonnes of V2O5 per year.

 

SIGNIFICANT EVENTS AND TRANSACTIONS SUBSEQUENT TO 2019

 

·                  On January 22, 2020, the Company announced the launch of VPURE and VPURE+, newly developed brands for the Company’s vanadium products.

 

·                  In January 2020, 2,707 warrants with an exercise price of $0.65 were exercised resulting in gross proceeds to the Company of $1,713, with 129 warrants surrendered as part of a cashless exercise. 5,533 shares were issued in connection with a cashless exercise of warrants in 2019 (refer to note 14).

 

·                  In March 2020, the Company secured a US$13,000 credit facility in Brazil. All amounts drawn under the facility are due to be repaid as a lump sum at maturity in 359 days.

 

·                  The Company is conscious of the rapid expansion of the COVID-19 pandemic and the evolving global implications. To date, there have been no significant disruptions to the Company’s supply chain or on its shipment of products from the Maracás Menchen Mine. However, the Company cautions that the potential future impact of any restrictions on the Company’s supply chain, operations, sales efforts and logistics is currently unknown but could be significant.

 

2019 SUMMARY

 

Financial

 

·                  The Company recorded a net loss of $36,212 in 2019, compared with net income of $315,956 in 2018. This movement was primarily due to a decrease in revenues of $381,403 from $521,415 in 2018 to $140,012 in 2019 and an increase in exploration and evaluation costs of $2,497. This was partially offset by a decrease in operating costs of $11,905, a decrease in finance costs of $21,396, an increase in interest income of $5,658 and a decrease in the total income tax and deferred income tax expense of $1,745. For Q4 2019, the Company

 

2

 

recorded a net loss of $4,953, compared with net income of $107,961 for Q4 2018. This movement was primarily attributable to the same factors as noted above, with a decrease in revenues of $143,425 from $177,543 in Q4 2018 to $34,118 in Q4 2019.

 

 

 

Three months ended

 

Year ended

 

 

 

December 31,
2019

 

December 31,
2018

 

December 31,
2019

 

December 31,
2018

 

Revenues

 

$

34,118

 

$

177,543

 

$

140,012

 

$

521,415

 

Direct mine and mill costs

 

(20,025

)

(21,332

)

(84,252

)

(82,037

)

Operating costs

 

(29,980

)

(37,637

)

(123,841

)

(135,746

)

Net income (loss) before tax

 

(2,544

)

131,091

 

(31,259

)

322,654

 

Income tax expense

 

(1,190

)

(11,694

)

(1,144

)

(27,467

)

Deferred income tax (expense) recovery

 

(1,219

)

(11,436

)

(3,809

)

20,769

 

Net income (loss)

 

(4,953

)

107,961

 

(36,212

)

315,956

 

Basic earnings (loss) per share

 

(0.01

)

0.21

 

(0.07

)

0.61

 

Diluted earnings (loss) per share

 

(0.01

)

0.16

 

(0.07

)

0.49

 

 

 

 

 

 

 

 

 

 

 

Cash provided before non-cash working capital items

 

$

16,507

 

$

134,357

 

$

28,630

 

$

403,157

 

Net cash provided by operating activities

 

10,445

 

144,165

 

139,282

 

352,074

 

Net cash provided by (used in) financing activities

 

12,206

 

(64,811

)

(115,226

)

(177,786

)

Net cash (used in) investing activities

 

(7,472

)

(6,198

)

(50,386

)

(18,989

)

Net change in cash

 

11,262

 

78,127

 

(40,111

)

151,463

 

 

Sales and Trading

 

·                  The Company recognized revenues of $34,118 in Q4 2019, compared with $177,543 in Q4 2018, with production for Q4 2019 of 3,011 tonnes of V2O5 being 416 tonnes higher than the 2,595 tonnes produced in Q4 2018. Vanadium sales from a contract with a customer was $47,568 in Q4 2019, compared with $167,639 in Q4 2018. This decrease is primarily attributable to a decrease in the V2O5 price, with the average price per lb of V2O5 of approximately US$5.37 for Q4 2019, compared with approximately US$24.53 for Q4 2018.

 

·                  For 2019, the Company recognized revenues of $140,012, compared with $521,415 in 2018, with production for 2019 of 10,577 tonnes of V2O5 being 747 tonnes higher than the 9,830 tonnes produced in 2018. Vanadium sales from a contract with a customer (note 22) was $277,285 in 2019, compared with $455,368 in 2018. This decrease is primarily attributable to a decrease in the V2O5 price, with the average price per lb of V2O5 of approximately US$9.36 for 2019, compared with approximately US$18.30 for 2018. Revenues are related to the Mine properties segment. Refer to note 4(c) part 9 for the Company’s vanadium sales accounting policy.

 

 

 

Three months ended

 

Year ended

 

 

 

December 31,
2019

 

December 31,
2018

 

December 31,
2019

 

December 31,
2018

 

Revenues per pound sold(1), (2)

 

$

5.41

 

$

31.96

 

$

6.25

 

$

24.33

 

Revenues per pound sold(1), (2) (US$)

 

US$

4.09

 

US$

24.19

 

US$

4.70

 

US$

18.68

 

 

 

 

 

 

 

 

 

 

 

Vanadium sales per pound sold(1), (2)

 

$

7.54

 

$

30.17

 

$

12.38

 

$

21.25

 

Vanadium sales per pound sold(1), (2) (US$)

 

US$

5.70

 

US$

22.84

 

US$

9.32

 

US$

16.32

 

 

 

 

 

 

 

 

 

 

 

Revenue adjustment per pound(1), (2)

 

$

(2.26

)

$

3.65

 

$

(6.05

)

$

3.53

 

Revenue adjustment per pound(1), (2) (US$)

 

US$

(1.71

)

US$

2.76

 

US$

(4.55

)

US$

2.71

 

 

(1)         The revenues per pound, vanadium sales per pound and revenue adjustment per pound reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this MD&A.

 

(2)         Revenues per pound sold and vanadium sales per pound sold are calculated based on the quantity of V2O5 sold during the stated period. Revenue adjustment per pound is calculated based on the quantity of V2O5 sold that is subject to re-measurement. This may or may not differ to the quantity sold. Accordingly, these three measures may not, and are not intended to, sum.

 

3

 

·                  As a consequence of the negative revenue adjustment per pound(1) realized in Q4 2019 and in 2019, the Company’s trade payables balance at December 31, 2019 (note 10) was $87,782 (December 31, 2018 — trade receivables (note 5) of $55,011). At December 31, 2019, the revenue adjustment payable(1) was $95,683 (US$73,602). Assuming V2O5 prices remain the same as at December 31, 2019 (refer to “Liquidity and Capital Resources” section of this MD&A), the Company’s estimated revenue adjustment payable for V2O5 sold(1) to December 31, 2019 is $96,239 (US$74,030). At the date of this MD&A, the Company’s estimated revenue adjustment payable for V2O5 sold(1) to February 29, 2020 is approximately $94,388 (US$72,606).  Also refer to the “Liquidity and Capital Resources” section of this MD&A.

 

·                  During Q4 2019 and 2019, the Company purchased and sold vanadium products (note 7) as part of the Company’s strategy to fulfil expected sales contracts going forward. Other gains (losses) includes the gains and losses recognized on these transactions, as well as the remeasurement gains and losses from the fair value measurement at the period end date. For Q4 2019 this was a loss of $2,545 (Q4 2018 — $nil) and for 2019 this was a loss of $1,795 (2018 — $nil).

 

Costs

 

 

 

Three months ended

 

Year ended

 

 

 

December 31,
2019

 

December 31,
2018

 

December 31,
2019

 

December 31,
2018

 

Cash operating costs per pound produced(1)

 

$

3.57

 

$

6.16

 

$

4.26

 

$

5.45

 

Cash operating costs per pound produced(1) (US$)

 

US$

2.70

 

US$

4.66

 

US$

3.21

 

US$

4.19

 

 

 

 

 

 

 

 

 

 

 

Cash operating costs excluding royalties per pound produced(1)

 

$

3.28

 

$

4.60

 

$

3.92

 

$

4.41

 

Cash operating costs excluding royalties per pound produced(1) (US$)

 

US$

2.48

 

US$

3.48

 

US$

2.95

 

US$

3.38

 

 

(1)         The cash operating costs per pound produced and cash operating costs excluding royalties per pound produced reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this MD&A.

 

·                  Operating costs of $29,980 in Q4 2019 (Q4 2018 — $37,637) include direct mine and mill costs of $20,025 (Q4 2018 — $21,332), depreciation and amortization of $7,979 (Q4 2018 — $7,347) and royalties of $1,976 (Q4 2018 — $8,958). The total operating costs are related to the Mine properties segment. The decrease in direct mine and mill costs is primarily attributable to the recovery of operating cost related tax credits totalling R$12,300 ($3,979). Excluding these credits, direct mine and mill costs increased in line with the increase in production and sales, with 3,011 tonnes of V2O5 produced in Q4 2019 (Q4 2018 — 2,595 tonnes) and 2,860 tonnes of V2O5 sold in Q4 2019 (Q4 2018 — 2,520 tonnes). For 2019, operating costs of $123,841 (2018 — $135,746) include direct mine and mill costs of $84,252 (2018 — $82,037), depreciation and amortization of $31,668 (2018 — $31,031) and royalties of $7,921 (2018 — $22,678). The decrease in royalties in 2019 from 2018 is due to a decrease in the V2O5 price and together with the same factors noted above, is a primary reason for the decrease in operating costs in 2019 as compared with 2018.

 

·                  Cash operating costs per pound produced(2) for Q4 2019 were $3.57 per lb (US$2.70), compared with $6.16 per lb (US$4.66) for Q4 2018. Cash operating costs per pound produced include royalties, which vary based on the price of V2O5. Cash operating costs excluding royalties per pound produced(2) were $3.28 per lb (US$2.48), compared with $4.60 (US$3.48) for Q4 2018. The decrease seen in Q4 2019 compared with Q4 2018 is largely due to the Q4 2019 production of 3,011 tonnes of V2O5 being 416 tonnes higher than the 2,595 tonnes produced in Q4 2018, as well as an improvement in the global recovery level to 77.3% in Q4 2019 from 75.3% in Q4 2018 and the recovery of tax credits as noted above.

 

·                  Professional, consulting and management fees in Q4 2019 were $3,549, a decrease of $1,197 from $4,746 in Q4 2018. The decrease is primarily attributable to costs incurred in Q4 2018 relating to debt restructuring and

 

(1)  The revenue adjustment per pound, revenue adjustment payable and estimated revenue adjustment payable for V2O5 sold reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this MD&A.

(2)  The cash operating costs per pound produced and cash operating costs excluding royalties per pound produced reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this MD&A.

 

4

 

repayment activities. Of the total professional, consulting and management fee expense in Q4 2019, $1,382 related to the Mine properties segment (Q4 2018 — $2,612) and $2,167 related to Corporate (Q4 2018 — $2,134), which is not an operating segment (refer to note 18). For 2019, total professional, consulting and management fees were $13,250 (2018 — $15,450), with $6,013 related to the Mine properties segment (2018 — $9,680) and $7,237 related to Corporate (2018 — $5,770).

 

·                  Finance costs in Q4 2019 were $52, a decrease of $8,254 from $8,306 in Q4 2018. The decrease is primarily attributable to the elimination of the Company’s debt facilities following the redemption of Notes that was completed on July 8, 2019 (refer to note 11). Of the total in Q4 2019, $45 related to the Mine properties segment (Q4 2018 — $939) and $7 related to Corporate (Q4 2018 —$7,367). For 2019, total finance costs were $18,290 (2018 — $39,686), with $281 related to the Mine properties segment (2018 — $23,624) and $18,009 related to Corporate (2018 — $16,062). The movement in finance costs from the Mine properties segment to Corporate is primarily attributable to the settlement of the various debt facilities in Brazil in the second half of 2018 following the issuance of the Notes, with the Notes subsequently redeemed in full following the final redemption on July 8, 2019 (refer to note 11).

 

·                  Share-based payments in Q4 2019 were $707 (Q4 2018 — $857). For 2019, share-based payments were $4,716 (2018 — $2,011). The increase in share-based payments is primarily attributable to the restricted share unit (“RSU”) grant in 2019, the continued vesting of RSUs and the accelerated vesting in full of 783 RSUs previously granted to Mr. Mark Smith following his departure from the Company on September 5, 2019.

 

·                  Exploration and evaluation costs in Q4 2019 were $728 (Q4 2018 — $589). Of the total in Q4 2019, an expense recovery of $8 related to the Exploration and evaluation properties segment (Q4 2018 — expense of $15) and $736 related to the Mine properties segment (Q4 2018 — $574). For 2019, total exploration and evaluation costs were $3,684 (2018 — $1,187), with $363 related to the Exploration and evaluation properties segment (2018 — $77) and $3,321 related to the Mine properties segment (2018 — $1,110). The increase in exploration and evaluation costs is due to the increased level of exploration work being performed at the Company’s Campo Alegre de Lourdes project and at the Maracás Menchen Mine as the Company works toward updating its resources at the strategic direction of the Company’s Board of Directors.

 

·                  Interest income in Q4 2019 was $1,066, an increase of $449 from $617 in Q4 2018. This is due to the Company’s increased cash position prior to Q4 2019 as compared with the same prior year period and the final redemption of the Company’s long-term debt facilities, which enabled the Company to benefit from greater deposit interest rates. For 2019, interest income was $6,556, as compared with $898 in 2018.

 

·                  In Q4 2019, the Company recognized an income tax expense of $1,190 (Q4 2018 —$11,694). The movement is due to a decrease in taxable profits in the Mine properties segment in Q4 2019 compared with Q4 2018, largely due to the decrease in revenues noted previously. For 2019, the Company recognized an income tax expense of $1,144 (2018 —$27,467). The total income tax expense is related to the Mine properties segment.

 

·                  In Q4 2019, the Company recognized a deferred income tax expense of $1,219 (Q4 2018 —$11,436). For 2019, the Company recognized a deferred income tax expense of $3,809 (2018 — recovery of $20,769). The expense in 2019 is due to the decrease of the deferred income tax asset as a result of the usage of non-capital losses in Brazil. The recovery in 2018 is due to the initial recognition of the deferred income tax asset for these non-capital losses, with the expense in Q4 2018 arising from the usage of non-capital losses in Brazil. The total deferred income tax expense/recovery is related to the Mine properties segment.

 

·                  The Company recognized a comprehensive loss of $737 in Q4 2019 (Q4 2018 — comprehensive income of $125,842) after recognizing a cumulative translation adjustment gain of $4,216 (Q4 2018 —$17,881). For 2019, the Company recognized a comprehensive loss of $56,052 (2018 — comprehensive income of $307,028) after recognizing a cumulative translation adjustment loss of $19,840 (2018 — $8,928). The 2019 cumulative translation adjustment was mainly due to the depreciation in the value of the Company’s net investment in its Maracás Menchen Mine and related mine properties, plant and equipment, in turn due to a weakening of the Brazilian real against the Canadian dollar by approximately 8%.

 

5

 

Cash Flows

 

·                  In Q4 2019 the Company generated positive cash from operating activities, with net cash provided by operating activities of $10,445, compared with $144,165 in Q4 2018. This decrease was primarily due to a decrease in revenues, with revenues exceeding direct mine and mill costs and royalties by $12,117 in Q4 2019, compared with $147,253 in Q4 2018. This contributed to cash provided before non-cash working capital items of $16,507, compared with $134,357 in Q4 2018. For 2019, net cash provided by operating activities was $139,282 (2018 — $352,074), with cash provided before non-cash working capital items of $28,630 (2018 — $403,157) and a net change in working capital items of $110,652 (2018 — negative change of $51,083), which is primarily due to the change in trade receivables / payables (from December 31, 2018 to December 31, 2019) of $142,793.

 

·                  Cash provided by financing activities in Q4 2019 was $12,206, compared with cash used of $64,811 in Q4 2018. The movement is primarily due to a decrease in the repayment of long-term debt from Q4 2018 of $56,511, a decrease in the debt issue costs, interest, guarantee fees and other associated fees paid of $11,349 and an increase in cash proceeds from the issuance of common shares and warrants of $8,551.

 

·                  For 2019, cash used in financing activities was $115,226, compared with $177,786 in 2018. The movement is primarily due to a decrease in the repayment of long-term debt of $193,792, a decrease in the debt issue costs, interest, guarantee fees and other associated fees paid of $52,725, an increase in interest income of $5,722 and an increase in cash proceeds from the issuance of common shares and warrants of $3,846. This was partially offset by a decrease in the receipt of long-term debt of $191,790 and a decrease in the change in restricted cash of $4,244.

 

·                  Cash used in investing activities in Q4 2019 was $7,472, an increase of $1,274 from the $6,198 seen in Q4 2018. For 2019, cash used in investing activities was $50,386, compared with $18,989 in 2018. The increase over the same prior year period is primarily due to the expansion project being undertaken by the Company in 2019, which was completed on budget and within the guidance as presented in the Company’s MD&A for the three and nine months ended September 30, 2019.

 

·                  The net change in cash in Q4 2019 was an increase of $11,262, compared with $78,127 in Q4 2018. For 2019, the net change in cash was a decrease of $40,111, compared with an increase of $151,463 in 2018. These movements are primarily attributable to the factors highlighted above.

 

Operations

 

·                  Production quantities and cash operating costs per pound produced(1) are summarized in the following table:

 

 

 

Production

 

Production
Pounds

 

Average Quarterly

 

Cost per pound

 

 

 

Tonnes

 

Equivalent(4)

 

V2O5 price (US$/lb)

 

US$(5)

 

$(1),(2),(3)

 

R$(6)

 

4th Quarter 2019

 

3,011

 

6,638,111

 

5.37

 

$

2.70

 

$

3.57

 

R$

11.13

 

3rd Quarter 2019

 

2,952

 

6,508,038

 

7.16

 

$

3.02

 

$

3.99

 

R$

11.89

 

2nd Quarter 2019

 

2,515

 

5,544,619

 

8.59

 

$

3.54

 

$

4.75

 

R$

13.88

 

1st Quarter 2019

 

2,099

 

4,627,497

 

16.34

 

$

3.79

 

$

5.04

 

R$

14.23

 

4th Quarter 2018

 

2,595

 

5,720,989

 

24.53

 

$

4.66

 

$

6.16

 

R$

17.76

 

3rd Quarter 2018

 

2,563

 

5,650,441

 

19.66

 

$

4.14

 

$

5.41

 

R$

16.34

 

2nd Quarter 2018

 

2,458

 

5,418,956

 

15.44

 

$

3.85

 

$

4.97

 

R$

13.87

 

1st Quarter 2018

 

2,214

 

4,881,029

 

13.57

 

$

4.11

 

$

5.20

 

R$

13.34

 

 

(1)         The cash operating costs per pound produced reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this MD&A.

 

(2)         Excludes corporate SG&A or CAPEX (Capital Expenditures).

 

(3)         The reader is cautioned that the cash operating costs per pound produced presented are intended to serve as a guide to the magnitude of the Company’s monthly operating expenditures on a cash basis and excludes financing costs associated with the operations and non-cash accounting charges (including but not limited to depreciation and amortization expense, accretion, share-based payments, or foreign exchange gains or losses). The measure may therefore not be comparable to other companies or the results of similar operations and does not meet any definition of GAAP. Refer to the “Non-GAAP Measures” section of this MD&A.

 

(4)         Conversion of tonnes to pounds, 1 tonne = 2,204.62 pounds or lbs.

 

(5)         Calculated from “$ Cost per pound” using average $/US$ foreign exchange rates of 1.32, 1.32, 1.34, 1.33, 1.32, 1.31, 1.29 and 1.26 for the 4th Quarter 2019, 3rd Quarter 2019, 2nd Quarter 2019, 1st Quarter 2019, 4th Quarter 2018, 3rd Quarter 2018, 2nd Quarter 2018 and 1st Quarter 2018, respectively.

 

(6)         Calculated from “$ Cost per pound” using average $/R$ foreign exchange rates of 3.11, 2.98, 2.92, 2.82, 2.88, 3.02, 2.79 and 2.57 for the 4th Quarter 2019, 3rd Quarter 2019, 2nd Quarter 2019, 1st Quarter 2019, 4th Quarter 2018, 3rd Quarter 2018, 2nd Quarter 2018 and 1st Quarter 2018, respectively.

 

6

 

·                  Q4 2019 production of 3,011 tonnes of V2O5 was 16% higher than Q4 2018. Production in December 2019 achieved a new monthly record with 1,162 tonnes of V2O5 produced, which contributed to the total V2O5 production in 2019 of 10,577 tonnes being 747 tonnes higher than in 2018. In October, 946 tonnes of V2O5 was produced, with 903 tonnes produced in November. Q4 2019 production was 2% higher than in Q3 2019, primarily due to the completion of the expansion in the milling and evaporation areas, which enabled the full plant to achieve its expanded design capacity.

 

·                  The Q4 2019 global recovery was 77.3%, higher than the 75.3% achieved in Q4 2018 but lower than those achieved in Q1 2019 (80.0%), Q2 2019 (79.1%) and Q3 2019 (78.1%). The decrease seen in Q4 2019 is primarily attributable to the global recovery in October 2019 of 72.9%, which was impacted due to the commissioning and ramp-up activities in the milling area. In November and December 2019, the global recoveries were 79.4% and 78.1%, respectively.

 

·                  Subsequent to Q4 2019, production in January 2020 was 956 tonnes of V2O5, with 915 tonnes of V2O5 produced in February 2020. Production in January 2020 was impacted by shutdowns of the kiln and cooler to fix the refractory and maintenance to correct an instability in the kiln feed. February 2020 production was impacted by a kiln shutdown to fix a hot spot in the refractory. In April 2020 the Company is planning an upgrade to the kiln burner and improvements in the cooler with the aim of increasing kiln capacity by 10%. This will require the kiln and cooler to be shut down for approximately 15 days. During this period, the Company will replace approximately 15 to 20 metres of the cooler refractory. The Company estimates that production in April 2020 will be approximately 500 tonnes of V2O5.

 

SELECTED QUARTERLY INFORMATION

 

Summary financial information for the eight quarters ended December 31, 2019, prepared in accordance with IFRS:

 

Period

 

Revenue

 

Net
Income (Loss)

 

Basic Earnings
(Loss) per Share

 

Total Assets

 

Non-current
Liabilities

 

4th Quarter 2019

 

$

34,118

 

$

(4,953

)

$

(0.01

)

$

466,118

 

$

9,572

 

3rd Quarter 2019

 

32,118

 

(8,590

)

(0.02

)

448,881

 

9,234

 

2nd Quarter 2019

 

29,462

 

(20,501

)

(0.04

)

492,902

 

9,603

 

1st Quarter 2019

 

44,314

 

(2,168

)

(0.00

)

476,574

 

8,893

 

4th Quarter 2018

 

177,543

 

107,961

 

0.21

 

552,825

 

8,865

 

3rd Quarter 2018

 

149,458

 

71,416

 

0.14

 

463,972

 

172,239

 

2nd Quarter 2018

 

103,321

 

90,735

 

0.17

 

634,612

 

163,652

 

1st Quarter 2018

 

91,093

 

45,844

 

0.09

 

406,696

 

188,152

 

 

The Company’s asset base has fluctuated over the last eight quarters ended December 31, 2019, with the high in Q2 2018 primarily attributable to proceeds from the senior secured notes held in escrow as restricted cash prior to the settlement of debt facilities in Q3 2018 and amounts receivable.

 

During Q4 2019, the Company recognized revenues of $34,118, which was offset by operating costs of $29,980, finance costs of $52 and a total tax expense of $2,409.

 

During Q3 2019, the Company recognized revenues of $32,118, which was offset by operating costs of $31,506, finance costs of $58 and a total tax recovery of $1,260.

 

During Q2 2019, the Company recognized revenues of $29,462, which was offset by operating costs of $33,284, finance costs of $10,897 and a total tax expense of $222.

 

During Q1 2019, the Company recognized revenues of $44,314, which was offset by operating costs of $29,071, finance costs of $7,283 and a total tax expense of $3,582.

 

During Q4 2018, the Company recognized revenues of $177,543, which was offset by operating costs of $37,637, finance costs of $8,306 and a total tax expense of $11,694.

 

During Q3 2018, the Company recognized revenues of $149,458, which was offset by operating costs of $36,706, finance costs of $15,031 and a total tax expense of $20,318.

 

7

 

During Q2 2018, the Company recognized revenues of $103,321 and a deferred tax recovery of $45,593, which was offset by operating costs of $30,220 and finance costs of $8,423. The Company recognized a foreign exchange loss of $9,055 primarily due to the translation of U.S. denominated cash into Canadian dollar equivalent.

 

During Q1 2018, the Company recognized revenues of $91,093, which was offset by operating costs of $31,183 and finance costs of $7,926. The Company recognized a foreign exchange gain of $2,253 primarily due to the translation of U.S. denominated cash into Canadian dollar equivalent.

 

OPERATIONS

 

Maracás Menchen Mine

 

Recent Developments

 

Expenditures of $55,511 were capitalized to mine properties, plant and equipment during 2019 (2018 — $20,480), including $9,989 of capitalized waste stripping and push back costs (2018 — $9,793).

 

Sales of V2O5 during Q4 2019 were 2,860 tonnes, including 480 tonnes of high purity V2O5 (2,520 tonnes in Q4 2018, including 360 tonnes of high purity V2O5). Sales of high purity V2O5 in 2019 were 1,640 tonnes, 14% higher than the 1,440 tonnes sold in 2018.

 

The production of 3,011 tonnes of V2O5 achieved in Q4 2019 was the result of the completion of the expansion project and the achievement of the expanded design capacity. This was highlighted by the new monthly production record in December 2019 of 1,162 tonnes of V2O5.

 

The Q4 2019 global recovery of 77.3% was impacted by the lower global recovery achieved in October 2019 (72.9%) through the commissioning and ramp-up activities in the milling area. The 2019 global recovery of 78.5% is higher than the 77.0% achieved in 2018, primarily due to the improved performance of the kiln, which increased its recovery from 86.6% in 2018 to 89.1% in 2019.

 

In Q4 2019, 329,792 tonnes of ore were mined with an effective grade of 1.36% of V2O5. The Company produced 100,879 tonnes of concentrate ore with an effective V2O5 grade of 3.28%, compared with 92,190 tonnes produced in Q4 2018 with a grade of 3.27%.

 

The following table is a summary of production statistics at the Maracás Menchen Mine.

 

 

 

Q4 2019

 

Q4 2018

 

2019

 

2018

 

Total Ore Mined (tonnes)

 

329,792

 

256,436

 

1,156,016

 

822,795

 

Ore Grade Mined - Effective Grade(1) (%)

 

1.36

 

1.33

 

1.34

 

1.30

 

 

 

 

 

 

 

 

 

 

 

Effective Grade of Ore Milled (%)

 

1.57

 

1.53

 

1.50

 

1.68

 

Concentrate Produced (tonnes)

 

100,879

 

92,190

 

382,501

 

343,126

 

Grade of Concentrate (%)

 

3.28

 

3.27

 

3.29

 

3.41

 

Contained V2O5 (tonnes)

 

3,310

 

3,016

 

12,580

 

11,718

 

 

 

 

 

 

 

 

 

 

 

Crushing Recovery (%)

 

96.6

 

97.4

 

97.0

 

97.2

 

Milling Recovery (%)

 

96.0

 

97.9

 

96.9

 

96.9

 

Kiln Recovery (%)

 

89.7

 

84.3

 

89.1

 

86.6

 

Leaching Recovery (%)

 

96.7

 

96.5

 

96.8

 

97.2

 

Chemical Plant Recovery (%)

 

96.1

 

97.2

 

96.8

 

97.0

 

Global Recovery (%)(2)

 

77.3

 

75.3

 

78.5

 

77.0

 

 

 

 

 

 

 

 

 

 

 

V2O5 Produced (Flake + Powder) (tonnes)

 

3,011

 

2,595

 

10,577

 

9,830

 

 

(1)         Effective grade represents the percentage of magnetic material mined multiplied by the percentage of V2O5 in the magnetic concentrate.

 

(2)         Global recovery is the product of crushing recovery, milling recovery, kiln recovery, leaching recovery and chemical plant recovery.

 

8

 

The Company uses production drilling prior to blasting to better define the ore and waste material being mined. This dilution control procedure has enabled the Company to avoid mining waste rock inside the ore block, resulting in less ore being mined, but with a higher grade than expected. The V2O5 content of the mined ore and the mine sequencing is consistent with that anticipated in the Technical Report (refer to the “Reserves and Resources” section). The Company’s crushing and milling costs have benefited from the implementation of this procedure as a result of the lower throughput of material in these sections of the plant.

 

2020 Guidance

 

The Company’s progress against its sales strategy for 2020 is in line with the Company’s expectations. The Company is confident that building its own commercial capacity will add significant long-term value to the Company.

 

The Company’s 2020 guidance presented in the following table is prepared on a “business as usual” basis. The guidance and forecasts in this MD&A are highly dependent on there being no disruptions or interruptions to the Company’s supply chain and logistics, which are critical to the Company’s operations and sales. Notwithstanding the Company’s production, cost and sales guidance for 2020, the Company is conscious of the rapid expansion of the COVID-19 pandemic and the evolving measures being imposed by governments globally to reduce its spread and the impact that this may have on the Company’s guidance. To date, the restrictions imposed by the government in Brazil have not impacted the Company’s operations but the potential future impact of these restrictions and other restrictions globally on the Company’s operations, sales efforts and logistics is unknown but could be significant.

 

The Company is continuing to monitor the rapidly developing impacts of the COVID-19 pandemic and will take all possible actions to help minimize the impact on the Company and its people. However, these actions may significantly change the guidance and forecasts presented. Refer to the Company’s Annual Information Form for the year ended December 31, 2019 for the full discussion of the Company’s Risks and Uncertainties, including those relating to the COVID-19 pandemic.

 

 

 

2020 Guidance

 

Annual V2O5 production

 

tonnes

11,750 - 12,250

 

Annual V2O5 sales

 

tonnes

9,500 - 10,000

 

 

 

 

 

 

Cash operating costs excluding royalties(1)

 

US$/lb

3.05 - 3.25

 

Total cash costs(2),(3)

 

US$/lb

3.45 - 3.65

 

 

 

 

 

 

Sustaining capital expenditures (excluding capitalized stripping costs)

 

$

11,500 - 14,500

 

 

 

US$

9,000 - 11,000

 

Ferrovanadium conversion plant capital expenditures

 

$

 

6,500 - 9,500

 

 

 

US$

5,000 - 7,000

 

 

(1)         The cash operating costs reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this MD&A. However, for 2020 onwards, this measure will be reported on a per pounds sold basis rather than per pounds produced. The estimated average annual R$/US$ and $/US$ exchange rates used are approximately 4.50 and 1.30, respectively.

 

(2)         The total cash costs reported are on a non-GAAP basis. Refer to the details below this table. The estimated average annual R$/US$ and $/US$ exchange rates used are approximately 4.50 and 1.30, respectively.

 

(3)         These measures exclude royalties. Every US$1/lb in the V2O5 price realized by the Company in revenues adds approximately US$0.05/lb in royalties.

 

For 2020, the Company has revised the non-GAAP cost measures it will use to measure its performance. This decision was taken in light of the anticipated difference between production and sales volumes in 2020. Following the end of the Company’s off-take agreement on April 30, 2020, the Company will incur its own sales and distribution costs, which will be included as a component of operating costs going forward. Costs associated with the off-take agreement were included in the commissions that were included in the measurement of revenues. The new non-GAAP measures the Company will use for 2020 onwards are as detailed below.

 

Total cash costs

 

Total cash costs are a non-GAAP performance measure that includes direct mine and mill costs, sales and distribution costs and the Company’s professional, consulting and management fees and other general and administrative expenses. Total cash costs exclude royalties, depreciation and amortization, share-based

 

9

 

payments, foreign exchange gains or losses, reclamation costs, exploration and evaluation costs and capital expenditures. These costs are then divided by the pounds of V2O5 sold by the Company to arrive at total cash costs.

 

This measure differs from cash operating costs per pound produced in that it includes all sales and distribution costs, professional, consulting and management fees and other general and administrative expenses, rather than just those from the Mine properties segment, and is calculated on pounds sold rather than pounds produced. The Company believes this will be a more accurate reflection of its unit costs given the anticipated difference between pounds produced and pounds sold after the end of the Company’s off-take agreement on April 30, 2020.

 

This total cash costs measure does not have any standardized meaning prescribed by IFRS and differs from measures determined in accordance with IFRS. This measure is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. This measure is not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.

 

Reserves and Resources

 

On October 16, 2017, the Company disclosed mineral reserve and mineral resource estimates with an effective date of May 2, 2017 in a report titled Maracás Menchen Project, Bahia, Brazil An Updated Mine Plan, Mineral Reserve and Preliminary Economic Assessment of the Inferred Resources (the “Technical Report”), prepared by GE21 Consultoria Mineral Ltda (“GE21”).

 

The Mineral Resources for the Campbell deposit are estimated from diamond drill core information stored in a secured central database and were evaluated using a geostatistical block modelling approach. A three-dimensional block model was generated to enable grade estimation. The selected block size was based on the geometry of the domain interpretation and the data configuration. The block size of 5 m E by 5 m N by 5 m RL was selected. The “percent” block modelling technique was used to represent the volume of the interpreted wireframe models. Sufficient variables were included in the block model construction to enable grade estimation and reporting.

 

Resource estimation for the Campbell deposit was undertaken using ordinary kriging (“OK”) as the principal estimation methodology for V2O5. The OK estimates were completed using Gemcom mining software. In 2016, Largo updated mineral resource estimate for the Campbell deposit as a result of depletion of mined resources. This Measured and Indicated resource was used to update the reserve and used for the new mine plan presented in the Technical Report prepared by GE21.

 

The new block model incorporates percent magnetics (percent of magnetic minerals in the mineralized rock) and magnetite concentrate grade for V2O5 and SiO2. No new drilling was available for the estimate; however, it was adjusted for mining completed to date. The updated Mineral Resources for the Campbell deposit are presented below:

 

Campbell Mineral Resources — Maracás Menchen Mine
Effective date: May 2, 2017

 

Category

 

Tonnes
(million)

 

V2O5 head grade
(%)

 

V2O5 contained
(kt)

 

V2O5 in concentrate
(%)

 

Magnetics
(%)

 

Measured (M)

 

18.08

 

1.19

 

215.0

 

3.19

 

30.55

 

Indicated (I)

 

1.70

 

1.28

 

21.7

 

3.12

 

34.64

 

Total M&I

 

19.78

 

1.20

 

236.7

 

3.19

 

30.90

 

Inferred

 

1.65

 

1.20

 

19.8

 

3.10

 

33.08

 

 

Resources within a pit shell using US$34.20/t all in operating cost and reported at a 0.45% V2O5 cut-off, reviewed and confirmed by Fabio Valério Xavier (GE21).

 

Mineral Reserves have been estimated for the Campbell deposit with an effective date of May 2, 2017. The mine plan developed in the Technical Report is based on Measured and Indicated resources only as delineated in the table above. Reserves are reported using a sales price of US$6.34 per lb of V2O5. The ultimate pit design and mine plan was done to optimize kiln feed. The open pit Mineral Reserve estimate is based on a mine plan and open pit designs developed using modifying parameters including metal prices, metal recovery based on performance of the processing plant, operating and sustaining capital cost estimates based on the production schedule and equipment requirements. Other factors including; dilution, mining recovery, shipping terms, geotechnical

 

10

 

characteristics of the rock mass, and the likelihood of obtaining land title, required permits environmental, social and legal licenses may affect the final Mineral Resources and Reserves.

 

The Mineral Reserves presented below were estimated by Porfírio Cabaleiro Rodriguez of GE21, who is a qualified person under NI 43-101 and a Member of the Australian Institute of Geoscientists.

 

Campbell Mineral Reserves — Maracás Menchen Mine
Block dimensions 5x5x5 (m) — Mine Recovery 100% and Dilution 5%
Effective date: May 2, 2017

 

Reserve Category

 

Tonnage
(kt)

 

V2O5 head grade
(%)

 

Magnetics
(%)

 

V2O5 in concentrate
(%)

 

Contained V2O5
(kt)

 

Proven

 

17,570

 

1.14

 

29.66

 

3.21

 

167.3

 

Probable

 

1,440

 

1.26

 

33.89

 

3.20

 

15.6

 

Total in pit Reserve

 

19,010

 

1.15

 

29.98

 

3.21

 

182.9

 

 

Notes to mineral reserve and mineral resource estimates:

 

(1)         A probable mineral reserve is the economically mineable part of an indicated mineral resource, and in some circumstances, measured mineral resource.

(2)         A proven mineral reserve is, in most common circumstances, the economically mineable part of a measured mineral resource.

(3)         Mineral reserves are included in measured and indicated resources.

(4)         The reference point at which mineral reserves are defined is the point where the ore is delivered from the open pit to the crushing plant.

(5)         The mineral resource and mineral reserve estimates are reported in accordance with the National Instrument 43-101 — Standards of Disclosure for Mineral Projects (NI 43-101) and the CIM Definition Standards on Mineral Resources and Reserves (CIM Definition Standards) as a minimum standard.

 

The Company also completed a revised block model and updated mineral resource estimate for the Near Mine Targets incorporating the drilling from the 2011 program including 72 holes totalling 13,401 m. The Near Mine Targets which extend north from Gulçari A for eight kilometres include from south to north: Gulçari A Norte, Gulçari B, São José, Novo Amparo and Novo Amparo Norte. All are hosted in the Rio Jacaré Intrusion.

 

The Mineral Resources presented in the following table are considered current (subject to the update for Novo Amparo Norte in the following “Recent Developments” section) and do not include any drill results from the 2018 or 2019 drill programs.

 

Satellite Deposits Mineral Resources
Effective date: May 2, 2017

 

Deposits

 

Category

 

Tonnes
(kt)

 

V2O5
(%)

 

Contained V2O5
(t)

 

Gulçari A Norte**

 

Inferred

 

9,730

 

0.84

 

81,388

 

Gulçari B**

 

Inferred

 

2,910

 

0.70

 

20,312

 

Novo Amparo**

 

Inferred

 

1,560

 

0.72

 

11,255

 

Novo Amparo Norte**

 

Inferred

 

9,720

 

0.87

 

84,453

 

São José**

 

Inferred

 

3,900

 

0.89

 

34,706

 

Satellite Deposits (Total)**

 

Inferred

 

27,820

 

0.83

 

232,114

 

 

** Resources within a pit shell using US$34.20/t all in operating cost and reported at a 0.45% V2O5 cut-off, reviewed and confirmed by Porfírio Cabaleiro Rodriguez (GE21).

 

Notes to mineral reserve and mineral resource estimates:

 

(1)         Mineral resources within a pit shell using US$34.20/t all in operating cost and reported at a 0.45% V2O5 cut-off, reviewed and confirmed by Fabio Valério Xavier (GE21).

(2)         Mineral resources are classified as measured, indicated and inferred based on relative levels of confidence in their estimation and on technical and economic parameters consistent with the methods most suitable to their potential commercial exploitation.

(3)         The mineral resource and mineral reserve estimates are reported in accordance with the National Instrument 43-101 — Standards of Disclosure for Mineral Projects (NI 43-101) and the CIM Definition Standards on Mineral Resources and Reserves (CIM Definition Standards) as a minimum standard.

(4)         The PEA is preliminary in nature and includes only inferred mineral resources that are considered too speculative geologically to have any economic consideration applied to them that would enable them to be categorized as a mineral reserve.  There is no certainty that the PEA will be realized. These results have no impact on the results of any pre-feasibility or feasibility with respect to the Maracás Menchen Mine.

 

GE21 recommended the Near Mine Targets be developed sequentially as follows: Novo Amparo Norte, Gulçari A Norte & Gulçari B, São José, Campbell in pit resources and Novo Amparo.

 

The Technical Report prepared by GE21 was designed to allow the Company to more fully optimize operations in order to maximize the Maracás Menchen Mine’s NPV and is based on the production of V2O5 from the Maracás Menchen Mine’s mineral resources as well as from its established mineral reserves. The report does not provide any credit for by-products, however Largo will continue to evaluate the technical and economic viability of all

 

11

 

potential by-products. The Technical Report respects the definition of PEA as described in the CSA Staff Notice 43-307 — Mining Technical Report — Preliminary Economic Assessments, issued by the Canadian Securities Administrators on August 16, 2012.

 

Qualified Persons

 

Porfírio Cabaleiro Rodriguez, Mining Engineer, BSc (Mine Eng), MAIG employed by GE21, Leonardo Apparicio da Silva, Mining Engineer, BSc (Min Eng), MSc (Met Eng), MAIG associated to GE21, and Fabio Valerio Xavier, Geologist, BSc, Geol, MAIG associated to GE21, are the Qualified Persons as defined in NI 43-101 responsible for the Technical Report and are all independent of the Company.

 

Quality Assurance Quality Control

 

The scientific and technical information in this reserves and resources section of the MD&A has been reviewed and approved by Porfírio Cabaleiro Rodriguez, Mining Engineer, BSc (Mine Eng), MAIG, GE21 director; Leonardo Apparicio da Silva, Mining Engineer, BSc (Min Eng), MSc (Met Eng), MAIG; and Fabio Valerio Xavier, Geologist, BSc, Geol, MAIG, both employed by GE21, all of whom are Qualified Persons as defined in NI 43-101.

 

Recent Developments

 

The Company completed a two-phase exploration program in 2018. Phase I was a 2,000 metre in-pit drill program designed to further define the reserve block model for production over the next two to three years in the Campbell Pit. This program began in the middle of April 2018 and was completed on May 30, 2018. The in-pit program completed 31 holes totalling 2,323 metres. The data was modelled and used for mine planning and development purposes. Consultants from GE21 assisted in the modelling.

 

Phase II included a 4,950 metre drilling program focused on upgrading and expanding the Near Mine Targets and along strike high priority targets. Drilling began on June 4, 2018 with two rigs focused at Novo Amparo Norte and the Company completed 24 holes totalling 4,223 metres prior to December 31, 2018. This included 13 infill and 11 step out holes. On December 19, 2018, the Company announced that this program had expanded the mineralization to the north and south at Novo Amparo Norte. Infill drilling was designed to upgrade the resource category at Novo Amparo Norte. Additionally, seven holes were drilled on targets south of the Campbell pit. The drill program was completed on October 23, 2018.

 

The Company extended the Phase II definition drilling program at Novo Amparo Norte in the first quarter of 2019.  Diamond drilling was initiated at Novo Amparo Norte on January 15, 2019. In total, 47 diamond drill holes (5,404 metres) were completed. The work focused on increasing confidence in the resource categories and extending mineralisation at depth and along strike.  This program was completed mid-February 2019. On June 11, 2019, the Company reported a new resource estimate for Novo Amparo Norte based on 12,911 metres (88 drill holes) of drilling with an effective date of May 31, 2019.

 

Novo Amparo Norte Mineral Resources
Effective date: May 31, 2019

 

Category

 

Tonnes
(million)

 

V2O5 head grade
(%)

 

Magnetics
(%)

 

Magnetic
concentrate V2O5
(%)

 

V2O5 contained in
magnetic concentrate
(t)

 

Measured (M)

 

6.25

 

0.91

 

33.1

 

2.32

 

48,046

 

Indicated (I)

 

5.98

 

0.85

 

28.1

 

2.50

 

41,996

 

Total M&I

 

12.23

 

0.88

 

30.7

 

2.41

 

90,042

 

Inferred

 

11.33

 

0.90

 

31.2

 

2.46

 

86,960

 

 

(1)         Mineral Resources have been classified using the Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”), CIM Standards on Mineral Resources and Reserves, Definitions and Guidelines prepared by the CIM Standing Committee on Reserve Definitions and adopted by the CIM Council.

(2)         Mineral Resources which are not Mineral Reserves do not have demonstrated economic viability.  The Inferred Mineral Resource in this estimate has a lower level of confidence than that applied to the Measured and Indicated Mineral Resource.  It is reasonably expected that a portion of the Inferred Mineral Resource could be upgraded to an Indicated Mineral Resource with continued exploration.

(3)         Magnetic content is determined by Davis Tube Test methodology.  V2O5 content of the magnetic concentrate was determined by XRF79C methodology at the SGS facility in Belo Horizonte, Brazil.

(4)         Assuming only mineralized zones grading 0.45% V2O5 or greater

(5)         Numbers may not add up exactly due to rounding.

 

12

 

In Q2 2019 exploration work shifted to the Novo Amparo deposit where 4,646 metres (24 drill holes) of drilling were completed. Drilling was also completed at the São José deposit where 2,813 metres (18 drill holes) of drilling were completed. Further drilling was carried out on the Gulçari A Norte and Gulçari B (now considered as one target). Drilling on all targets focussed on extending and upgrading known mineralization as defined in the 2017 Technical Report. The Company also completed 1,177 metres of drilling (three holes) neat the Campbell Pit to explore for target horizons down dip and along strike of the current reserve area.

 

In Q4 2019 work focussed primarily on the Gulçari A South target where 2,313 metres (16 drill holes) were completed.

 

Based on all diamond drilling across the Near Mine Targets, a new geological interpretation of the Rio Jacaré intrusion was formulated that has helped the Company to better understand the intrusive complex to improve drilling targeting and interpretation of mineralized zones. Diamond drilling was completed in early December 2019 and all analytical data has now been received. Work is in process collating the data and preparing new geological models for updated resource models at the various targets.

 

Outlook

 

The Company has developed an Exploration Master Plan (“EMP”) for 2019 to 2021 to advance known deposits, increase resources and reserves, further evaluate the potential for along strike continuation of the vanadium rich magnetite mineralization and to maintain the Company’s mineral concessions to the north and south of the Campbell deposit. The EMP includes ground magnetic surveys, mapping, sampling, drilling and modelling of deposits on the mineral concessions. Where required, landowners are being contacted for permission to access their lands to perform exploration work. In addition, necessary permits for vegetation suppression are in process and upon receipt, the Company will continue with its planned exploration program. The Company is forecasting approximately 13,500 metres of drilling at the Near Mine Targets in 2020.

 

Campo Alegre de Lourdes

 

Recent Developments

 

The Company completed a 1,200 metre drilling program in December 2018 and has finalized the geological and structural mapping needed to satisfy the Company’s contractual requirements and to develop the Company’s knowledge of mineralization.

 

In Q3 2019, a limited drill program was completed at the Morro Branca target at the Campo Alegre de Lourdes project.   From July 5 to August 5, 2019 the Company completed six diamond drill holes (1,016 metres) to test down dip extension of mineralisation and to collect material for additional metallurgical testing at the Morro Branca target.  Internal studies to determine potential recovery of both V2O5 and TiO2 from the vanadiferous titanomagnetite (“VTM”) mineralisation are being complimented with additional work currently underway at SGS Lakefield’s facility in Canada.  This metallurgical testing continues and is being supplemented through the Company’s internal work. The agreement with Companhia Baiana de Pesquisa Mineral (“CBPM”) expired on January 11, 2020.  Prior to expiration the Company met with CBPM representatives and agreed to extend the Research Agreement for an additional two years to allow the Company to continue to evaluate the geological and economic potential of the project and the renewed agreement now extends the working relationship to January 11, 2022.

 

During Q4 2019, the Company had an expense recovery of $10 (Q4 2018 — expense of $13) and during 2019, the Company incurred $353 in expenditures (2018 — $59) at the Campo Alegre de Lourdes project.

 

Outlook

 

Additional metallurgical work is planned in 2020. The Company will continue to evaluate all technical information and will formulate an appropriate work program based on continued metallurgical testing.

 

Northern Dancer

 

Recent Developments

 

Management is not conducting any further work at this time on the Northern Dancer property, as the majority of the Company’s efforts are focused on the Maracás Menchen Mine.

 

During Q4 2019, the Company incurred $2 in expenditures (Q4 2018 — $2) and during 2019, the Company incurred $10 in expenditures (2018 — $18) at the Northern Dancer project.

 

13

 

Outlook

 

Management is not planning any significant expenditures for the foreseeable future.

 

Currais Novos Tungsten Tailings Project

 

Recent Developments

 

Management is not conducting any work at this time on the Currais Novos Tungsten Tailings Project, as the majority of the Company’s efforts are focused on the Maracás Menchen Mine.

 

Outlook

 

Management is not planning any significant expenditures for the foreseeable future.

 

FINANCIAL INSTRUMENTS

 

Financial assets and financial liabilities at December 31, 2019 and 2018 were as follows:

 

 

 

December 31,
2019

 

December 31,
2018

 

Cash

 

$

166,077

 

$

206,188

 

Restricted cash

 

99

 

21

 

Amounts receivable

 

247

 

55,126

 

Accounts payable and accrued liabilities

 

101,360

 

33,461

 

Current portion of long-term debt

 

—

 

117,354

 

 

The Company’s risk exposures and the impact on the Company’s financial instruments are summarized in note 21. There have been no changes in the risks, objectives, policies and procedures from the previous year.

 

LIQUIDITY AND CAPITAL RESOURCES

 

The Company’s continuance as a going concern is dependent on its ability to maintain profitable levels of operations.

 

At December 31, 2018, the price per lb of V2O5 was between US$15.00 and US$16.00. This decreased to a range of between US$4.80 and US$5.85 at December 31, 2019, with an average of approximately US$5.37 for Q4 2019, compared with approximately US$24.53 for Q4 2018. The price decrease since Q4 2018 is the primary factor behind the decrease in revenues and cash provided before non-cash working capital items seen in Q4 2019 and 2019, compared with Q4 2018 and 2018.

 

The Company’s cash and revenue adjustment payable(3) balances are:

 

 

 

December 31,
2019

 

December 31,
2018

 

Cash

 

$

166,077

 

$

206,188

 

Revenue adjustment payable(3)

 

$

95,683

 

$

—

 

 

Given the overall decline in the market price of V2O5 since December 31, 2018, the Company recorded lower revenues in 2019 as a result of significant negative re-measurements of trade receivables / payables. The average price per lb of V2O5 was approximately US$5.71 for January 2020 and approximately US$6.94 for February 2020. At the date of the MD&A, the market price of V2O5 was in a range of US$5.00 to US$6.00 per lb.

 

The Company is continuing to monitor the rapidly developing impacts of the COVID-19 pandemic and will take all possible actions to help minimize the impact on the Company and its people. Given these uncertainties, the Company is actively working to secure credit facilities to provide it with additional cash resources should the impacts be significant.

 

The Company has forecast its expected cash balance and the estimated revenue adjustment payable(3) at April 30, 2020 (the end date of the May 14, 2008 off-take agreement with Glencore International AG — refer to the “2019

 

(3)  The revenue adjustment payable and estimated revenue adjustment payable for V2O5 sold are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this MD&A.

 

14

 

Highlights” section of this MD&A) under three different vanadium price scenarios. Each scenario assumes that the vanadium price shown in the table below applies from January 1, 2020 to April 30, 2020 and assumes constant foreign exchange rates and total cash costs (this is a non-GAAP measure, refer to page 9 of this MD&A) consistent with the guidance on page 9 of this MD&A. The forecast balances, which constitute forward-looking information, are shown in the following table.

 

 

 

US$5.00/lb

 

US$6.00/lb

 

US$7.00/lb

 

Forecast cash at April 30, 2020

 

$

165,295

 

$

165,464

 

$

165,949

 

Estimated revenue adjustment payable(4) at April 30, 2020

 

93,281

 

84,474

 

75,826

 

Net at April 30, 2020

 

$

72,014

 

$

80,990

 

$

90,123

 

 

Assuming an increase or decrease in the V2O5 price of US$1.00/lb after April 1, 2020, the Company expects the revenue adjustment payable(4) to impact future periods (positively or negatively) by approximately US$7,400 ($10,730 using a foreign exchange rate of 1.45).

 

The adequacy of the Company’s capital structure is assessed on an ongoing basis and adjusted as necessary after taking into consideration the Company’s strategy, vanadium prices, economic conditions and associated risks. To maintain or adjust its capital structure, the Company may adjust capital expenditures, issue new common shares or take on new debt. At December 31, 2019, the Company’s debt balance was $nil as a result of the final redemption of Notes as described in note 11. Subsequent to the period, the Company received gross proceeds of $1,713 from the exercise of 2,707 warrants with an exercise price of $0.65.

 

Senior secured notes

 

On May 22, 2018, the Company completed a private placement of US$150,000 ($191,790) aggregate principal amount of senior secured notes due in 2021 (the “Notes”). The Notes were callable in years 2 and 3 and had an interest rate of 9.25% per annum, paid on a semi-annual basis in arrears on December 1 and June 1 each year, beginning on December 1, 2018. The terms of the Notes allowed the Company to redeem all or part of the Notes at varying redemption prices and established certain restrictive covenants. In addition, the Notes required the Company to make an offer to purchase the maximum amount of the Notes that may be purchased with 75% of the excess cash flow for each six-month period ending June 30 and December 31.

 

Following the satisfaction of the escrow release conditions, the net proceeds from the offering of US$143,277 ($183,194), being the principal amount less a 2% original issue discount, fees and certain expenses of the offering were used, together with cash on hand at the time of repayment, to repay in full the Company’s BNDES Facility, 2016 Facility, 2017 Facility, Swap Facility and export credit facilities, plus accrued and unpaid interest and any fees and expenses in connection therewith. The total amount paid in settlement of these facilities, including principal, interest and fees, was $247,976.

 

The total costs incurred in relation to the issuance of the Notes was $10,476.

 

On September 20, 2018, the Company redeemed US$15,000 in aggregate principal amount, representing 10% of the US$150,000 aggregate principal amount of Notes currently outstanding. The redemption price was 105% per principal amount of the Notes redeemed, plus accrued and unpaid interest up to, but not including, September 20, 2018.

 

Under the terms of the Notes, the Company had until November 18, 2018 (180 days from the closing date of the offering) to provide and duly register in Brazil the Pledge over all the shares the Company holds in its operating subsidiary, Vanádio de Maracás S.A. (“Vanádio”). This Pledge was registered and the Company provided the required evidence of same to the trustee under the indenture governing the Notes on November 8, 2018.

 

On December 10 and 12, 2018, the Company purchased and cancelled US$16,173 and US$26,015 in aggregate principal amounts of Notes outstanding. The redemption prices were 104.750% and 105.125% per principal amount of the Notes redeemed, respectively, plus accrued and unpaid interest up to these dates.

 

On January 28, 2019 and February 19, 2019, the Company completed the purchase and cancellation of US$59,221 and US$4,490 in aggregate principal amounts of Notes outstanding. The Notes were purchased at a price equal to

 

(4)  The revenue adjustment per pound, revenue adjustment payable, estimated revenue adjustment payable for V2O5 sold and cash operating costs per pound produced reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this MD&A.

 

15

 

105.625% per principal amount of the Notes redeemed plus accrued and unpaid interest up to January 28, 2019 and February 15, 2019, respectively.

 

On May 3, 2019, the Company made an excess cash flow offer to purchase all of its outstanding Notes at that time of US$29,101 at a purchase price of 103% of the principal amount thereof plus accrued and unpaid interest to, but not including, the purchase date. The offer was required to be made in accordance with the terms of the Notes and following this offer, US$6,736 of the Notes were repurchased and cancelled.

 

On June 10, 2019, the Company announced that it had elected to redeem the remaining outstanding Notes. The Notes were redeemed on July 8, 2019 at a price equal to 104.625% of the principal amount of the Notes plus accrued and unpaid interest to, but not including, the redemption date. The total amount paid was US$23,606 ($30,905), including the principal amount of Notes outstanding of US$22,365 ($29,280).

 

Following this redemption on July 8, 2019, the balance of the Notes outstanding was $nil and therefore, the Company is debt free.

 

At December 31, 2019, the balance of the Notes was US$nil ($nil) (December 31, 2018 — US$92,812 ($126,503)).

 

Maracás Menchen Mine

 

The contract with the Company’s off-take partner commenced in May 2014 and production of vanadium commenced during August 2014, with the first sale of vanadium pentoxide flake concluded during September 2014. Since this time, the Company has continued to further ramp up the production and sales of V2O5, as described in the “Maracás Menchen Mine” section above. In connection with the ramp-up, the Company has also evaluated its future financial requirements, including inter alia its sustaining capital and working capital needs for the next 12 months.

 

At December 31, 2019, the Company had an accumulated deficit of $64,073 since inception (December 31, 2018 — $29,481) and had a net working capital surplus of $102,013 (December 31, 2018 —$135,258) (defined as current assets less current liabilities). The total amount due within 12 months on the Company’s long-term debt is $nil (December 31, 2018 — $126,503).

 

The following table details the Company’s expected remaining contractual cash flow requirements at December 31, 2019 for its liabilities and commitments with agreed repayment periods. The amounts presented are based on the undiscounted cash flows and therefore, may not equate to the carrying amounts on the consolidated statement of financial position.

 

 

 

Less than
6 months

 

6 months
to 1 year

 

1 to 3 years

 

Over 3 years

 

Accounts payable and accrued liabilities

 

$

101,360

 

$

—

 

$

—

 

$

—

 

Operating and purchase commitments

 

10,751

 

1,701

 

444

 

177

 

 

 

$

112,111

 

$

1,701

 

$

444

 

$

177

 

 

The Company’s principal sources of liquidity are its cash flow from operating activities and cash of $166,077 (December 31, 2018 — $206,188). In response to the vanadium price decreases throughout 2019, the Company has adopted certain measures to manage its liquidity risk including repaying its Notes during the year ended December 31, 2019. Despite these measures, and in conjunction with the current vanadium price environment, a risk exists that the Company will not have sufficient liquidity to meet its obligations as they come due. At December 31, 2019, the Company’s trade receivables was in a liability position of $87,782 and was classified as trade payables within accounts payable and accrued liabilities (refer to notes 10 and 21(a)) (December 31, 2018 — trade receivables of $55,011 (refer to note 5)).

 

OUTSTANDING SHARE DATA

 

(Exercise prices presented in this section are in dollars and not thousands).

 

At December 31, 2019, there were 554,534 common shares of the Company outstanding. At the date of this MD&A, there were 562,976 common shares of the Company outstanding.

 

16

 

At December 31, 2019, under the share compensation plan of the Company, 808 RSUs were outstanding and 3,147 stock options were outstanding with exercise prices ranging from $0.46 to $3.04 and expiry dates ranging between June 17, 2020 and January 14, 2024. If exercised, the Company would receive proceeds of $3,012. The weighted average exercise price of the stock options outstanding is $0.96.

 

As of the date of this MD&A, 752 RSUs and 2,947 stock options were outstanding with exercise prices ranging from $0.46 to $3.04 and expiry dates ranging between June 17, 2020 and January 14, 2024.

 

At December 31, 2019, 108,102 common share purchase warrants were outstanding with exercise prices ranging from $0.29 to $1.15 and expiring between January 6, 2020 and December 13, 2022. If these warrants were exercised, the Company would receive proceeds of $45,825. The weighted average exercise price of the warrants is $0.42.

 

As of the date of this MD&A, 104,593 common share purchase warrants were outstanding with exercise prices ranging from $0.29 to $1.15 and expiring between December 31, 2020 and December 13, 2022.

 

TRANSACTIONS WITH RELATED PARTIES

 

The 2019 annual consolidated financial statements include the financial statements of the Company and its subsidiaries. There have been no changes in the Company’s ownership interests in its subsidiaries since December 31, 2018, with the addition of two new subsidiaries as shown in note 4(a). The Company had transactions with related parties during 2019. Refer to note 17.

 

Additional information regarding the compensation of officers and directors of the Company is disclosed in the Company’s management information circular, which is available under the profile of the Company on SEDAR at www.sedar.com.

 

COMMITMENTS AND CONTINGENCIES

 

At December 31, 2019, the Company was party to certain management and consulting contracts. Minimum commitments under the agreements are approximately $3,130 and are all payable within one year. These contracts also require that additional payments of up to approximately $4,695 be made upon the occurrence of certain events such as change of control. As the triggering event has not occurred, the contingent payments have not been reflected in these consolidated financial statements.

 

In 2008, Largo agreed to sell 100% of its vanadium production to Glencore International AG under an off-take agreement which, following the election by the Company, will expire at the end of April 2020.

 

The Company’s mining and exploration activities are subject to various federal, provincial and international laws and regulations governing the protection of the environment. These laws and regulations are continually changing and generally becoming more restrictive. The Company has made payments to comply with such laws and regulations.

 

The Company indemnifies its directors and officers against any and all claims or losses reasonably incurred in the performance of their service to the Company to the extent permitted by law. The Company has acquired and maintains liability insurance for its directors and officers.

 

The Company is committed to a minimum amount of rental payments under three leases of office space which expire on December 31, 2023, April 30, 2022 and October 31, 2020, respectively. Minimum rental commitments remaining under the leases are approximately $858, including $257 due within one year. In addition, minimum rental commitments remaining under other short-term leases are approximately $110, all due within one year.

 

At the Company’s Maracás Menchen Mine, the Company has entered into purchase order contracts with remaining amounts due related to goods not received or services not rendered as of December 31, 2019 of $8,975.

 

The Company, through its subsidiaries, is party to legal proceedings in the ordinary course of its operations related to legally binding agreements with various third parties under supply contracts and consulting agreements. At December 31, 2019 two such proceedings were ongoing, each in Brazil. The first relates to a supply agreement for the Maracás Menchen Mine which was filed with the courts in October 2014. The amount claimed totals R$9,900 ($3,203), with a counterclaim filed by Vanádio for R$10,700 ($3,461). A provision of R$1,324 ($428)

 

17

 

has been recognized at December 31, 2019 for the probable loss (December 31, 2018 — R$1,455 ($511)). The second proceeding relates to a consulting agreement dispute for which R$3,900 ($1,262) (December 31, 2018 — R$3,900 ($1,371)) has been claimed against two of the Company’s subsidiaries. No provision has been recognized for this proceeding. The Company and its subsidiaries are also party to legal proceedings regarding labour matters. A provision was recorded at December 31, 2018 for such proceedings in an amount of R$2,566 ($902). At December 31, 2019, the provision recognized was R$3,468 ($1,122). The outcome of these proceedings remains dependent on the final judgment, which the Company does not expect to be delivered within the next 12 months. Management does not expect the outcome of any of the remaining proceedings to have a materially adverse effect on the results of the Company’s financial position or results of operations. Should any losses result from the resolution of these claims and disputes, they will be charged to operations in the period that they are determined.

 

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING

 

Disclosure Controls and Procedures

 

The Company’s disclosure controls and procedures (“DC&P”) are designed to provide reasonable assurance that all relevant information is communicated to management to allow timely decisions regarding required disclosure. An evaluation of the effectiveness of the Company’s DC&P, as defined under the rules of the Canadian Securities Administration, was conducted as at December 31, 2019 under the supervision of the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”) and with the participation of management. Based on the results of that evaluation, the CEO and CFO concluded that the Company’s DC&P were effective as at December 31, 2019 providing reasonable assurance that the information required to be disclosed in the Company’s annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported in accordance with securities legislation.

 

Internal Control over Financial Reporting

 

Internal control over financial reporting (“ICFR”) is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. ICFR should include those policies and procedures that establish the following:

 

·                      maintenance of records in reasonable detail, that accurately and fairly reflect the transactions and dispositions of assets;

 

·                      reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with applicable IFRS;

 

·                      receipts and expenditures are only being made in accordance with authorizations of management or the Board of Directors; and

 

·                      reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial instruments.

 

The Company’s management, under supervision of the CEO and CFO, assessed the effectiveness of the Company’s ICFR based on the criteria established in Internal Control — Integrated Framework (2013) issued by The Committee of Sponsoring Organizations of the Treadway Commission and concluded that as at December 31, 2019, the Company’s ICFR was effective.

 

During the year ended December 31, 2019, the Company did not make any significant changes to its ICFR that would have materially affected, or reasonably likely to materially affect, its ICFR.

 

Limitations of Disclosure Controls and Procedures and Internal Control over Financial Reporting

 

The Company’s management, including the CEO and CFO, believe that due to inherent limitations, any DC&P or ICFR, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that any design will not succeed in achieving its stated goals under all potential future conditions. Accordingly, because of the inherent limitations

 

18

 

in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Additionally, management is required to use judgment in evaluating DC&P and ICFR.

 

SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS

 

The preparation of the 2019 annual consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Actual outcomes could differ from these estimates. These 2019 annual consolidated financial statements include estimates, which, by their nature, are uncertain. The impacts of such estimates are pervasive throughout the 2019 annual consolidated financial statements and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised, and the revision affects both current and future periods.

 

Significant areas requiring the use of estimates and assumptions relate to the determination of mineral reserve estimates and the impact on stripping costs, useful lives of mine properties, plant and equipment, impairment analysis of non-financial assets and estimates of the timing of outlays for asset retirement obligations. Other significant areas include the valuation of mine properties, plant and equipment and development properties, estimates of provisions for environmental rehabilitation, current and deferred taxes and contingencies. Refer to note 4(d) for a detailed description of these areas of significant judgment, estimates and assumptions. Actual results could differ from those estimates.

 

CHANGES IN ACCOUNTING POLICIES

 

The basis of presentation, and accounting policies and methods of their application in the 2019 annual consolidated financial statements are consistent with those used in the Company’s annual consolidated financial statements for the year ended December 31, 2018, except as disclosed in notes 3 and 4(c), which describe the Company’s adoption of IFRS 16, Leases, as well as the Company’s revised accounting policy for leases. In addition, the Company’s new accounting policy for vanadium products is described in note 4(c).

 

NON-GAAP(5) MEASURES

 

The Company uses certain non-GAAP financial performance measures in its MD&A, which are described in the following section.

 

Revenues Per Pound

 

The Company’s MD&A refers to revenues per pound sold, including vanadium sales per pound sold and revenue adjustment per pound sold.  These are non-GAAP performance measures and are used to provide investors with information about key measures used by management to monitor performance of the Maracás Menchen Mine.

 

These measures, along with cash operating costs per pound produced, are considered to be one of the key indicators of the Company’s ability to generate operating earnings and cash flow from its Maracás Menchen Mine. These revenues per pound measures do not have any standardized meaning prescribed by IFRS and differ from measures determined in accordance with IFRS. These measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These measures are not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.

 

The following tables provide a reconciliation of these measures per pound sold for the Maracás Menchen Mine to revenues as per the 2019 annual consolidated financial statements.

 

(5)  GAAP — Generally Accepted Accounting Principles.

 

19

 

 

 

Three months ended

 

 

 

December 31,
2019

 

December 31,
2018

 

Revenues(1)

 

$

34,118

 

$

177,543

 

V2O5 sold (000s lb)

 

6,305

 

5,556

 

Revenues per pound sold ($/lb)

 

$

5.41

 

$

31.96

 

Revenues per pound sold (US$/lb)(4)

 

$

4.09

 

$

24.19

 

 

 

 

 

 

 

Vanadium sales from a contract with a customer(2)

 

$

47,568

 

$

167,639

 

V2O5 sold (000s lb)

 

6,305

 

5,556

 

Vanadium sales per pound sold ($/lb)

 

$

7.54

 

$

30.17

 

Vanadium sales per pound sold (US$/lb)(4)

 

$

5.70

 

$

22.84

 

 

 

 

 

 

 

Re-measurement of trade receivables / payables(3)

 

$

(13,450

)

$

9,904

 

V2O5 sold subject to re-measurement (000s lb)

 

5,952

 

2,712

 

Revenue adjustment per pound ($/lb)

 

$

(2.26

)

$

3.65

 

Revenue adjustment per pound (US$/lb)(4)

 

$

(1.71

)

$

2.76

 

 

(1)         Calculated as the amount per note 22 less the amount disclosed for the nine-month period in note 20 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2019: $140,012 — $105,894 = $34,118.

 

Calculated as the amount per note 22 less the amount disclosed for the nine-month period in note 20 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2018: $521,415 — $343,872 = $177,543.

 

(2)         Calculated as the amount per note 22 less the amount disclosed for the nine-month period in note 20 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2019: $277,285 — $229,717 = $47,568.

 

Calculated as the amount per note 22 less the amount disclosed for the nine-month period in note 20 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2019: $455,368 — $287,729 = $167,639.

 

(3)         Calculated as the amount per note 22 less the amount disclosed for the nine-month period in note 20 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2019: $(137,273) — $(123,823) = $(13,450).

 

Calculated as the amount per note 22 less the amount disclosed for the nine-month period in note 20 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2019: $66,047 — $56,143 = $9,904.

 

(4)         Calculated from “$/lb” using average $/US$ foreign exchange rates of 1.32 and 1.32 for Q4 2019 and Q4 2018, respectively.

 

 

 

Year ended

 

 

 

December 31,
2019

 

December 31,
2018

 

Revenues(1)

 

$

140,012

 

$

521,415

 

V2O5 sold (000s lb)

 

22,399

 

21,427

 

Revenues per pound sold ($/lb)

 

$

6.25

 

$

24.33

 

Revenues per pound sold (US$/lb)(2)

 

$

4.70

 

$

18.68

 

 

 

 

 

 

 

Vanadium sales from a contract with a customer(1)

 

$

277,285

 

$

455,368

 

V2O5 sold (000s lb)

 

22,399

 

21,427

 

Vanadium sales per pound sold ($/lb)

 

$

12.38

 

$

21.25

 

Vanadium sales per pound sold (US$/lb)(2)

 

$

9.32

 

$

16.32

 

 

 

 

 

 

 

Re-measurement of trade receivables / payables(1)

 

$

(137,273

)

$

66,047

 

V2O5 sold subject to re-measurement (000s lb)

 

22,686

 

18,717

 

Revenue adjustment per pound ($/lb)

 

$

(6.05

)

$

3.53

 

Revenue adjustment per pound (US$/lb)(2)

 

$

(4.55

)

$

2.71

 

 

(1)         As per note 22.

 

(2)         Calculated from “$/lb” using average $/US$ foreign exchange rates of 1.33 and 1.30 for the years ended December 31, 2019 and 2018, respectively.

 

20

 

Cash Operating Costs Per Pound Produced

 

The Company’s MD&A refers to cash operating costs per pound produced, a non-GAAP performance measure, in order to provide investors with information about a key measure used by management to monitor performance. This information is used to assess how well the Maracás Menchen Mine is performing compared to plan and prior periods, and also to assess its overall effectiveness and efficiency.

 

Cash operating costs includes mine site operating costs such as mining costs, plant and maintenance costs, sustainability costs, mine and plant administration costs, royalties and sales, general and administrative costs (all for the mine properties segment), but excludes depreciation and amortization, share-based payments, foreign exchange gains or losses, commissions, reclamation, capital expenditures and exploration and evaluation costs.  These costs are then divided by the pounds of production from the Maracás Menchen Mine to arrive at the cash operating costs per pound produced. This measure differs to the new total cash costs non-GAAP measure the Company will use to measure its performance starting in 2020 — refer to the details on page 9 of this MD&A.

 

These measures, along with revenues, is considered to be one of the key indicators of the Company’s ability to generate operating earnings and cash flow from its Maracás Menchen Mine. These cash operating costs measures do not have any standardized meaning prescribed by IFRS and differ from measures determined in accordance with IFRS. These measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These measures are not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.

 

In addition, the Company’s MD&A refers to cash operating costs excluding royalties. This is a non-GAAP performance measure and is calculated as cash operating costs less royalties, as disclosed in the following tables.

 

The following tables provide a reconciliation of cash operating costs per pound produced for the Maracás Menchen Mine to operating costs, excluding depreciation expense as per the 2019 annual consolidated financial statements.

 

 

 

Three months ended

 

 

 

December 31,
2019

 

December 31,
2018

 

Operating costs(1)

 

$

29,980

 

$

37,637

 

Professional, consulting and management fees(2)

 

1,382

 

2,612

 

Other general and administrative expenses(3)

 

340

 

2,348

 

Less: depreciation and amortization expense(4)

 

(7,979

)

(7,347

)

Cash operating costs

 

$

23,723

 

$

35,250

 

Less: royalties(5)

 

(1,976

)

(8,958

)

Cash operating costs excluding royalties

 

$

21,747

 

$

26,292

 

V2O5 produced (000s lb)

 

6,638

 

5,721

 

Cash operating costs per pound produced ($/lb)

 

$

3.57

 

$

6.16

 

Cash operating costs per pound produced (US$/lb)(6)

 

US$

2.70

 

US$

4.66

 

Cash operating costs excluding royalties per pound produced ($/lb)

 

$

3.28

 

$

4.60

 

Cash operating costs excluding royalties per pound produced (US$/lb)(6)

 

US$

2.48

 

US$

3.48

 

 

(1)         Calculated as the amount for the Company’s Mine properties segment in note 18, less the amount disclosed for the Mine properties segment for the nine-month period in note 17 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2019: $123,841 — $93,861 = $29,980.

 

(2)         Calculated as the amount for the Company’s Mine properties segment in note 18, less the amount disclosed for the Mine properties segment for the nine-month period in note 17 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2019: $6,013 — $4,631 = $1,382.

 

(3)         Calculated as the amount for the Company’s Mine properties segment in note 18, less the amount disclosed for the Mine properties segment for the nine-month period in note 17 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2019: $1,145 — $805 = $340.

 

(4)         Calculated as the amount per note 23, less the amount disclosed for the nine-month period in note 21 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2019: $31,668 — $23,689 = $7,979.

 

(5)         Calculated as the amount per note 23, less the amount disclosed for the nine-month period in note 21 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2019: $7,921 — $5,945 = $1,976.

 

(6)         Calculated from “$/lb” using average $/US$ foreign exchange rates of 1.32 and 1.32 for Q4 2019 and Q4 2018, respectively.

 

21

 

 

 

Year ended

 

 

 

December 31,
2019

 

December 31,
2018

 

Operating costs(1)

 

$

123,841

 

$

135,746

 

Professional, consulting and management fees(2)

 

6,013

 

9,680

 

Other general and administrative expenses(2)

 

1,145

 

3,759

 

Less: depreciation and amortization expense(1)

 

(31,668

)

(31,031

)

Cash operating costs

 

$

99,331

 

$

118,154

 

Less: royalties(1)

 

(7,921

)

(22,678

)

Cash operating costs excluding royalties

 

$

91,410

 

$

95,476

 

V2O5 produced (000s lb)

 

23,318

 

21,671

 

Cash operating costs per pound produced ($/lb)

 

$

4.26

 

$

5.45

 

Cash operating costs per pound produced (US$/lb)(3)

 

US$

3.21

 

US$

4.19

 

Cash operating costs excluding royalties per pound produced ($/lb)

 

$

3.92

 

$

4.41

 

Cash operating costs excluding royalties per pound produced (US$/lb)(3)

 

US$

2.95

 

US$

3.38

 

 

(1)         As per note 23.

 

(2)         As per the Mine properties segment in note 18.

 

(3)         Calculated from “$/lb” using average $/US$ foreign exchange rates of 1.33 and 1.30 for the years ended December 31, 2019 and 2018, respectively.

 

Revenue Adjustment Payable

 

The Company’s MD&A refers to revenue adjustment payable, a non-GAAP performance measure used to provide investors with information about a key measure used by management as part of its monitoring of the financial liquidity of the Company.

 

This measure is considered to be one of the key components monitored relating to the Company’s projected financial liquidity and capital resources. This revenue adjustment payable does not have any standardized meaning prescribed by IFRS and differs from measures determined in accordance with IFRS. This measure is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance, financial liquidity or capital resources prepared in accordance with IFRS. This measure is not necessarily indicative of cash flow from operating activities or disclosed commitments as determined and presented under IFRS.

 

The following table provides a reconciliation of this measure to trade receivables / payables as per the 2019 annual consolidated financial statements. At December 31, 2018, the Company had a trade receivable of $55,011, with a revenue adjustment payable of $nil.

 

 

 

December 31,
2019

 

Trade payables(1)

 

$

87,782

 

Add: amounts to be received included in trade payables

 

7,901

 

Revenue adjustment payable

 

$

95,683

 

Add: estimated future re-measurement for V2O5 sold(2)

 

556

 

Estimated revenue adjustment payable for V2O5 sold at December 31, 2019

 

$

96,239

 

Revenue adjustment payable

 

$

95,683

 

Add: estimated future re-measurement for V2O5 sold(3)

 

(1,295

)

Estimated revenue adjustment payable for V2O5 sold at the date of this MD&A

 

$

94,388

 

 

(1)         As per note 10.

 

(2)         Estimated based on the quantity of V2O5 sold in the year ended December 31, 2019 that is subject to re-measurement. The estimate assumes there is no change in the price per pound of V2O5 for the remainder of the duration of the Company’s off-take agreement from that stated as being the price at December 31, 2019 in the “Liquidity and Capital Resources” section of this MD&A and it assumes no receipt or payment of cash in relation to any amount in this table.

 

(3)         Estimated based on the quantity of V2O5 sold in the year ended December 31, 2019 and in the two months ended February 29, 2020 that is subject to re-measurement. The estimate assumes there is no change in the price per pound of V2O5 for the remainder of the duration of the Company’s off-take agreement from that stated as being the price at the date of this MD&A  in the “Liquidity and Capital Resources” section of this MD&A and it assumes no receipt or payment of cash in relation to any amount in this table.

 

22

 

RISKS AND UNCERTAINTIES

 

The Company is subject to various business, financial and operational risks that could materially adversely affect the Company’s future business, operations and financial condition. These risks could cause such future business, operations and financial condition to differ materially from the forward-looking statements and information contained in this MD&A and as described in the Cautionary Statement Regarding Forward-Looking Information found in this MD&A.

 

The Company’s business activities expose it to significant risks due to the nature of mining, development and exploration activities. The ability to manage these risks is a key component of the Company’s business strategy.  Management is forward looking in its assessment of risks. Identification of key risks occurs in the course of business activities, pursuing approved strategies and as part of the execution of risk oversight responsibilities at the management and Board of Directors’ level.

 

For a full discussion of the Company’s Risks and Uncertainties, please refer to the Annual Information Form for the year ended December 31, 2019, which is filed to the Company’s profile on SEDAR at www.sedar.com.

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

 

The information presented in this MD&A contains “forward-looking information” and “forward-looking statements” within the meaning of applicable Canadian and United States securities laws concerning the Company’s projects, capital, anticipated financial performance, business prospects and strategies and other general matters. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those included in the forward-looking information. The use of words such as “intend”, “anticipate”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “should”, “believe” and similar expressions are intended to identify forward-looking information. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance are not statements of historical fact and may constitute forward-looking information. Statements relating to mineral resources are also forward-looking information, as they involve the implied assessment, based on certain estimates and assumptions that the mineral resources described can be profitably produced in the future. There is no certainty that it will be commercially viable to produce any portion of the mineral resources.

 

Forward-looking information includes statements with respect to: the Company’s goals regarding development of its projects and further exploration and development of its properties; the Company’s proposed plans for advancing its projects, and potential future exploration and development projects; expectations regarding the continuity of mineral deposits; future prices of V2O5; future production at our Maracás Menchen Mine; the results in the Technical Report including resource estimates; expectations regarding any environmental issues that may affect planned or future exploration and development programs and the potential impact of complying with existing and proposed environmental laws and regulations; receipt and timing of third party approvals; government regulation of mineral exploration and development operations in Brazil; expectations regarding any social or local community issues in Brazil that may affect planned or future exploration and development programs; and statements in respect of V2O5 demand and supply. These statements and information are only predictions based on current information and knowledge, some of which may be attributed to third party industry sources. Actual future events or results may differ materially. Undue reliance should not be placed on such forward-looking information, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. By its nature, forward-looking information involves numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking information will not be realized.

 

The following are some of the assumptions upon which forward-looking information is based: that general business and economic conditions will not change in a material adverse manner; demand for, and stable or improving price of V2O5; receipt of regulatory and governmental approvals, permits and renewals in a timely manner; that the Company will not experience any material accident, labour dispute or failure of plant or equipment or other material disruption in the Company’s operations at the Maracás Menchen Mine; the availability of financing for operations and development; the Company’s ability to procure equipment and operating supplies in sufficient quantities and on a timely basis; that planned expansion at the Maracás Menchen

 

23

 

Mine will be completed in budget and in a reasonable timeframe and that the results of such expansion will be sufficient to expand the existing resources consistent with management’s expectations; that the estimates of the resources and reserves at the Maracás Menchen Mine are within reasonable bounds of accuracy (including with respect to size, grade and recovery); that the Company’s current expansion of development programs and objectives can be achieved; the Company’s ability to attract and retain skilled personnel and directors; and the accuracy of the Company’s mineral resource estimates (including size, grade and recoverability) and the geological, operational and price assumptions on which these are based.

 

Actual results could differ materially from those anticipated in this forward-looking information as a result of the risks and uncertainties including, without limitation:  volatility in prices of, and demand for, V2O5; risks inherent in mineral exploration and development; uncertainties associated with estimating mineral resources; uncertainties related to title to the Company’s mineral projects; revocation of government approvals; tightening of the credit markets, global economic uncertainty and counterparty risk; failure of plant, equipment or processes to operate as anticipated; unexpected events and delays during construction and development; competition for, among other things, capital and skilled personnel; geological, technical and drilling problems; fluctuations in foreign exchange or interest rates and stock market volatility; rising costs of labour and equipment; risks associated with political and/or economic instability in Brazil; inherent uncertainties involved in the legal dispute resolution process, including in foreign jurisdictions; changes in income tax and other laws of foreign jurisdictions; and other factors discussed under “Risk Factors” in the Company’s Annual Information Form for the year ended December 31, 2019 which is filed to the Company’s profile on SEDAR at www.sedar.com, and any additional risks as included in “Risks and Uncertainties” above. Assumptions relating to the potential mineralization of the Maracás Menchen Mine are discussed in the Technical Report which is available under the Company’s profile on SEDAR.

 

Additional risks and uncertainties not currently known to the Company, or that the Company currently deems to be immaterial, may also materially and adversely affect the Company’s business and prospects. Should one or more of these risks and uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in forward-looking information. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking information, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. The reader is cautioned not to place undue reliance on forward-looking information.

 

The forward-looking information is presented in this MD&A for the purpose of assisting investors in understanding the Company’s plans, objectives and expectations in making an investment decision and may not be appropriate for other purposes. This forward-looking information is expressly qualified in its entirety by this cautionary statement. Forward-looking information contained in this MD&A or documents incorporated herein by reference are made as of the date hereof or the document incorporated herein by reference, as applicable, and are accordingly subject to change after such date. The Company disclaims any obligation to update any such forward-looking information to reflect events or circumstances after the date of such information, or to reflect the occurrence of anticipated or unanticipated events, except as required by law.

 

The information presented contains “forward-looking statements”, within the meaning of the United States Private Securities Litigation Reform Act of 1995, and “forward-looking information” under similar Canadian legislation, concerning the business, operations and financial performance and condition of the Company. Forward-looking statements and forward-looking information include, but are not limited to, statements with respect to the estimation of mineral reserves and mineral resources; the realization of mineral reserve estimates; the timing and amount of estimated future production; costs of production; metal prices and demand for materials; capital expenditures; success of exploration and development activities; permitting time lines and permitting, mining or processing issues; government regulation of mining operations; environmental risks; and title disputes or claims. Generally, forward-looking statements and forward-looking information can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “guidance”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”.  Certain terms appearing in the following table are defined previously in this MD&A.  This table contains the material forward-looking statements made by the

 

24

 

Company in this MD&A, the assumptions made by the Company in making those statements and the risk factors associated with those assumptions.

 

Forward-looking
Statements

 

Assumptions

 

Risk Factors

The 2019 annual consolidated financial statements were prepared on a going concern basis. The going concern basis assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business.

 

The Company has assumed that it will be able to continue in operation for the foreseeable future and will be able to discharge its liabilities and commitments in the normal course of business, as it anticipates that it will address working capital and other shortfalls through positive cash flow from operations.

 

The Company’s continuance as a going concern is dependent on its ability to maintain profitable levels of operations.


Given the volatility in the market price of V2O5 since December 31, 2019, the Company anticipates that it could continue to realize significant re-measurements of trade receivables / payables in future periods until such time as prices stabilize or the off-take agreement ends.


The adequacy of the Company’s capital structure is assessed on an ongoing basis and adjusted as necessary after taking into consideration the Company’s strategy, vanadium prices, economic conditions and associated risks. To maintain or adjust its capital structure, the Company may adjust capital expenditures, issue new common shares or take on new debt. At December 31, 2019, the Company’s debt balance was $nil as a result of the final redemption of Notes as described in note 11. Subsequent to the period, the Company received gross proceeds of $1,713 from the exercise of 2,707 warrants with an exercise price of $0.65.

Production volumes are expected to achieve the expanded nameplate capacity of 1,000 tonnes per month during 2020.

2020 Production Guidance:
11,750 — 12,250 tonnes

 

The Company assumes that consistent production levels will continue at a level of or in excess of 1,000 tonnes per month.

 

The Company prepares future production estimates with respect to existing operations.


Actual production and costs may vary from the estimates for a variety of reasons such as estimates of grade, tonnage, dilution and metallurgical and other characteristics of the ore varying from the actual ore mined, revisions to mine plans, risks and hazards associated with mining, adverse weather conditions, unexpected labour shortages or strikes, equipment or design failures and other interruptions in production.


Production costs may also be affected by increased mining costs, variations in predicted grades of the deposits, increases in level of ore impurities, labour costs, raw material costs, inflation and fluctuations in currency exchange rates. Failure to achieve production targets or cost estimates could have a material adverse impact on the Company’s sales, profitability, cash flow and overall financial performance.


In the event that the Company obtains debt financing, repayment terms associated with such financing will likely be based, among other things, on production schedule estimates. Any failure to meet such timelines or to produce amounts forecast may

 

25

 

Forward-looking
Statements

 

Assumptions

 

Risk Factors

 

 

 

 

constitute defaults under such debt financing, which could result in the Company having to repay loans.

2020 Costs Guidance:
Cash operating costs
US$3.05 — 3.25

Total cash costs(1)
US$3.45 — 3.65

(1) The total cash costs reported are on a non-GAAP basis. Refer to the details on page 9 of this MD&A.

 

The Company assumes that its current estimation of future operating costs is accurate, as it is largely based on the current cost profile of operations at the Maracás Menchen Mine.

 

Capital and operating cost estimates made by management with respect to future projects, or current operations in the early stages of production are estimates which are in turn based, among other things, on interpretation of geological data, feasibility studies, anticipated climactic conditions and other information.


Any or all of the above could affect the accuracy of the estimates including unanticipated changes in grade and tonnage to be mined and processed; incorrect data on which engineering assumptions are made; unanticipated transportation costs; accuracy of equipment and construction cost estimates; difficulty or failure to meet scheduled construction completion dates, facility or equipment commissioning dates, or metal production dates; poor or unsatisfactory construction quality resulting in failure to meet completion, commissioning or production dates; increased expenditures required as a failure to meet completion, commissioning or production dates; capital overrun related to the completion of any construction phase including capital overrun associated with demobilization of construction workers and contractors; labour negotiations; unanticipated costs relating to the commencement of operations, ramp up and production sustainment; changes in government regulation (including regulations regarding prices, cost of consumables, royalties, duties, taxes, permitting and restrictions on production quotas or exportation of the Company’s products; and change in commodity input costs and quantities).

Sustaining capital expenditures of approximately $11,500 to $14,500 are expected to be required in 2020 to sustain current operational capacity (excluding capitalized waste stripping costs). In addition, the Company anticipates that capital expenditures in 2020 for its ferrovanadium conversion plant will be in the range of approximately $6,500 to $9,500.

 

Management assumes that its current estimation of capital expenditures is accurate, as based on operational estimates produced and current experience with operations.

 

Capital and operating costs estimates made by management with respect to future projects, or current operations in production, or not yet in the production phase are estimates which are in turn based, among other things, on interpretation of geological data, feasibility studies, anticipated climactic conditions and other information.


Any or all of these can affect the accuracy of the estimates including unanticipated changes in grade and tonnage to be mined and processed; incorrect data on which engineering assumptions are made; unanticipated transportation costs; accuracy of equipment and construction cost estimates; difficulty or failure to meet scheduled construction completion dates, facility or equipment commissioning dates, or metal production dates; poor or unsatisfactory

 

26

 

Forward-looking
Statements

 

Assumptions

 

Risk Factors

 

 

 

 

construction quality resulting in failure to meet completion, commissioning or production dates; increased expenditures required as a failure to meet completion, commissioning or production dates; capital overrun related to the completion of any construction phase including capital overrun associated with demobilization of construction workers and contractors; labour negotiations; unanticipated costs relating to the commencement of operations, ramp up and production sustainment; changes in government regulation (including regulations regarding prices, cost of consumables, royalties, duties, taxes, permitting and restrictions on production quotas or exportation of the Company’s products; and change in commodity input costs and quantities).

 

Forward-looking statements and forward looking information are based on the opinions and estimates of management as of the date such statements are made, and they are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking statements or forward looking information, including, but not limited to, unexpected events during operations; variations in ore grade; risks inherent in the mining industry; delay or failure to receive board approvals;  timing and availability of external financing on acceptable terms; risks relating to international operations; actual results of exploration activities; conclusions of economic valuations; changes in project parameters as plans continue to be refined; and fluctuating metal prices and currency exchange rates.

 

Although management of the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements or forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements and forward-looking information. The Company does not undertake to update any forward-looking statements or forward-looking information that are incorporated by reference herein, except in accordance with applicable securities laws.

 

Investors are advised that National Instrument 43-101 of the Canadian Securities Administrators (“NI 43-101”) requires that each category of mineral reserves and mineral resources be reported separately.  Mineral resources that are not mineral reserves do not have demonstrated economic viability.

 

Cautionary Note to U.S. Investors Concerning Estimates of Measured, Indicated or Inferred Resources

 

This MD&A uses the terms “measured”, “indicated” and “inferred” mineral resources. United States investors are advised that while such terms are recognized and required by Canadian regulations, the United States Securities and Exchange Commission does not recognize them. Inferred mineral resources have a great amount of uncertainty as to their existence, and as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or other economic studies. United States investors are cautioned not to assume that all or any part of measured or indicated mineral resources will ever be converted into mineral reserves. United States investors are also cautioned not to assume that all or any part of an inferred mineral resource exists or is economically or legally mineable.

 

27

Exhibit 99.6

 

GRAPHIC

 

LARGO RESOURCES LTD.

 

ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

(Expressed in thousands / 000’s of Canadian dollars)

 

 

TABLE OF CONTENTS

 

Management’s Responsibility for Financial Reporting

1

 

 

Independent Auditor’s Report

2

 

 

Consolidated Statements of Financial Position

1

 

 

Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)

2

 

 

Consolidated Statements of Changes in Equity

3

 

 

Consolidated Statements of Cash Flows

4

 

 

Notes to the Annual Consolidated Financial Statements

5

 

 

 

1)

Nature of operations

5

 

 

 

2)

Statement of compliance

5

 

 

 

3)

Changes in accounting policies

5

 

 

 

4)

Basis of preparation, significant accounting policies, and future accounting changes

5

 

 

 

5)

Amounts receivable

18

 

 

 

6)

Inventory

18

 

 

 

7)

Vanadium products

18

 

 

 

8)

Mine properties, plant and equipment

19

 

 

 

9)

Leases

20

 

 

 

10)

Accounts payable and accrued liabilities

20

 

 

 

11)

Long-term debt

20

 

 

 

12)

Provisions

22

 

 

 

13)

Issued capital

23

 

 

 

14)

Equity reserves

23

 

 

 

15)

Earnings (loss) per share

25

 

 

 

16)

Taxes

25

 

 

 

17)

Related party transactions

27

 

 

 

18)

Segmented disclosure

27

 

 

 

19)

Commitments and contingencies

28

 

 

 

20)

Capital management

29

 

 

 

21)

Financial instruments

30

 

 

 

22)

Revenues

32

 

 

 

23)

Expenses

32

 

 

 

24)

Subsequent events

32

 

 

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING

 

The accompanying consolidated financial statements of Largo Resources Ltd. (the “Company”) for the years ended December 31, 2019 and 2018 have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. Management is responsible for the preparation and presentation of the consolidated financial statements, including responsibility for significant accounting judgments and estimates and, where relevant, the choice of accounting principles.

 

In discharging its responsibility for the integrity and fairness of the consolidated financial statements, management designs and maintains the necessary accounting systems and an appropriate system of internal controls to provide reasonable assurance that transactions are authorized, assets are safeguarded and financial records are properly maintained.

 

The Board of Directors and the Audit Committee are composed primarily of Directors who are neither management nor employees of the Company. The Board is responsible for overseeing management in the performance of its financial reporting responsibilities, and for approving the financial information presented. The Board fulfils these responsibilities by reviewing the financial information prepared by management and discussing relevant matters with management and the independent auditors. The Audit Committee has the responsibility of meeting with management and the independent auditors to discuss the internal controls over the financial reporting process, auditing matters and financial reporting issues. The Board is also responsible for recommending the appointment of the Company’s external independent auditors.

 

The Company’s independent auditors audit the consolidated financial statements annually on behalf of the Company’s shareholders. The Company’s independent auditors have full and free access to management and the Audit Committee.

 

(signed)

(signed)

Paulo Misk

Ernest Cleave

President & Chief Executive Officer

Chief Financial Officer

March 20, 2020

March 20, 2020

 

 

 

Independent auditor’s report

 

To the Shareholders of Largo Resources Ltd.

 

Our opinion

 

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of Largo Resources Ltd. and its subsidiaries (together, the Company) as at December 31, 2019 and 2018, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS).

 

What we have audited

 

The Company’s consolidated financial statements comprise:

 

·          the consolidated statements of financial position as at December 31, 2019 and 2018;

 

·          the consolidated statements of income (loss) and comprehensive income (loss) for the years then ended;

 

·          the consolidated statements of changes in equity for the years then ended;

 

·          the consolidated statements of cash flows for the years then ended; and

 

·          the notes to the consolidated financial statements, which include a summary of significant accounting policies.

 

Basis for opinion

 

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Independence

 

We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities in accordance with these requirements.

 

Other information

 

Management is responsible for the other information. The other information comprises the Management’s Discussion and Analysis.

 

 

PricewaterhouseCoopers LLP

PwC Tower, 18 York Street, Suite 2600, Toronto, Ontario, Canada M5J 0B2

T: +1 416 863 1133, F: +1 416 365 8215

 

“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.

 

 

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

 

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

 

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

 

Responsibilities of management and those charged with governance for the consolidated financial statements

 

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

 

In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

 

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

 

Auditor’s responsibilities for the audit of the consolidated financial statements

 

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

 

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

 

·          Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

 

 

·          Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

 

·          Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

 

·          Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

 

·          Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

 

·          Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

 

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

 

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

 

The engagement partner on the audit resulting in this independent auditor’s report is Marelize Barber.

 

/s/PricewaterhouseCoopers LLP

 

Chartered Professional Accountants, Licensed Public Accountants

 

Toronto, Ontario

March 20, 2020

 

 

LARGO RESOURCES LTD.

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

 

 

As at

 

 

 

 

 

December 31,

 

December 31,

 

 

 

Notes

 

2019

 

2018

 

Assets

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

Cash

 

 

 

$

166,077

 

$

206,188

 

Restricted cash

 

 

 

99

 

21

 

Amounts receivable

 

5

 

8,019

 

62,559

 

Inventory

 

6

 

23,445

 

14,372

 

Vanadium products

 

7

 

4,227

 

—

 

Prepaid expenses

 

 

 

2,125

 

3,351

 

Total Current Assets

 

 

 

203,992

 

286,491

 

Non-current Assets

 

 

 

 

 

 

 

Deferred income tax

 

16(c)

 

13,783

 

18,881

 

Mine properties, plant and equipment

 

8

 

248,343

 

247,453

 

Total Non-current Assets

 

 

 

262,126

 

266,334

 

Total Assets

 

 

 

$

466,118

 

$

552,825

 

Liabilities

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

10

 

$

101,360

 

$

33,461

 

Current portion of provisions

 

12(b)

 

619

 

418

 

Current portion of long-term debt

 

11

 

—

 

117,354

 

Total Current Liabilities

 

 

 

101,979

 

151,233

 

Non-current Liabilities

 

 

 

 

 

 

 

Provisions

 

12

 

9,572

 

8,865

 

Total Non-current Liabilities

 

 

 

9,572

 

8,865

 

Total Liabilities

 

 

 

111,551

 

160,098

 

Equity

 

 

 

 

 

 

 

Issued capital

 

13

 

437,937

 

415,259

 

Equity reserves

 

14

 

19,447

 

25,853

 

Accumulated other comprehensive loss

 

 

 

(38,744

)

(18,904

)

Deficit

 

 

 

(64,073

)

(29,481

)

Total Equity

 

 

 

354,567

 

392,727

 

Total Liabilities and Equity

 

 

 

$

466,118

 

$

552,825

 

 

Commitments and contingencies

8, 19

Subsequent events

24

 

—The accompanying notes form an integral part of the consolidated financial statements—

 

Annual Consolidated Financial Statements For The Years Ended December 31, 2019 and 2018

 

1

 

LARGO RESOURCES LTD.

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)

 

 

 

 

 

Years ended December 31,

 

 

 

Notes

 

2019

 

2018

 

Revenues

 

22

 

$

140,012

 

$

521,415

 

Other gains (losses)

 

7

 

(1,795

)

—

 

 

 

 

 

138,217

 

521,415

 

Expenses

 

 

 

 

 

 

 

Operating costs

 

23

 

(123,841

)

(135,746

)

Professional, consulting and management fees

 

 

 

(13,250

)

(15,450

)

Foreign exchange (loss) gain

 

 

 

(8,350

)

292

 

Other general and administrative expenses

 

23

 

(3,901

)

(5,871

)

Share-based payments

 

14

 

(4,716

)

(2,011

)

Finance costs

 

23

 

(18,290

)

(39,686

)

Interest income

 

 

 

6,556

 

898

 

Exploration and evaluation costs

 

 

 

(3,684

)

(1,187

)

 

 

 

 

(169,476

)

(198,761

)

Net income (loss) before tax

 

 

 

$

(31,259

)

$

322,654

 

Income tax expense

 

16(a)

 

(1,144

)

(27,467

)

Deferred income tax (expense) recovery

 

16(a)

 

(3,809

)

20,769

 

Net income (loss)

 

 

 

$

(36,212

)

$

315,956

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

Items that subsequently will be reclassified to operations:

 

 

 

 

 

 

 

Unrealized loss on foreign currency translation

 

 

 

(19,840

)

(8,928

)

Comprehensive income (loss)

 

 

 

$

(56,052

)

$

307,028

 

Basic earnings (loss) per Common Share

 

15

 

$

(0.07

)

$

0.61

 

Diluted earnings (loss) per Common Share

 

15

 

$

(0.07

)

$

0.49

 

Weighted Average Number of Shares Outstanding (in 000’s)

 

15

 

 

 

 

 

- Basic

 

 

 

534,994

 

521,717

 

- Diluted

 

 

 

534,994

 

642,342

 

 

—The accompanying notes form an integral part of the consolidated financial statements—

 

2

 

LARGO RESOURCES LTD.

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

 

 

Shares

 

Issued
Capital

 

Equity
Reserves

 

Accumulated
Other
Comprehensive
Loss

 

Deficit

 

Shareholders’
Equity

 

Balance at December 31, 2017

 

516,877

 

$

400,677

 

$

30,086

 

$

(9,976

)

$

(346,429

)

$

74,358

 

Grant of share options

 

—

 

—

 

628

 

—

 

—

 

628

 

Grant of restricted share units

 

—

 

—

 

1,374

 

—

 

—

 

1,374

 

Exercise of warrants

 

7,660

 

9,837

 

(2,901

)

—

 

—

 

6,936

 

Exercise of share options

 

4,194

 

3,796

 

(1,402

)

—

 

—

 

2,394

 

Exercise of restricted share units

 

395

 

949

 

(949

)

—

 

—

 

—

 

Expiry of share options

 

—

 

—

 

(992

)

—

 

992

 

—

 

Share-based payments

 

—

 

—

 

9

 

—

 

—

 

9

 

Currency translation adjustment

 

—

 

—

 

—

 

(8,928

)

—

 

(8,928

)

Net income for the period

 

—

 

—

 

—

 

—

 

315,956

 

315,956

 

Balance at December 31, 2018

 

529,126

 

$

415,259

 

$

25,853

 

$

(18,904

)

$

(29,481

)

$

392,727

 

Grant of share options

 

—

 

—

 

847

 

—

 

—

 

847

 

Grant of restricted share units

 

—

 

—

 

2,476

 

—

 

—

 

2,476

 

Exercise of warrants

 

21,176

 

17,798

 

(6,302

)

—

 

—

 

11,496

 

Exercise of share options

 

3,248

 

2,730

 

(1,050

)

—

 

—

 

1,680

 

Exercise of restricted share units

 

984

 

2,150

 

(2,150

)

—

 

—

 

—

 

Expiry of warrants

 

—

 

—

 

(93

)

—

 

93

 

—

 

Expiry of share options

 

—

 

—

 

(1,527

)

—

 

1,527

 

—

 

Share-based payments

 

—

 

—

 

1,393

 

—

 

—

 

1,393

 

Currency translation adjustment

 

—

 

—

 

—

 

(19,840

)

—

 

(19,840

)

Net loss for the period

 

—

 

—

 

—

 

—

 

(36,212

)

(36,212

)

Balance at December 31, 2019

 

554,534

 

$

437,937

 

$

19,447

 

$

(38,744

)

$

(64,073

)

$

354,567

 

 

—The accompanying notes form an integral part of the consolidated financial statements—

 

3

 

LARGO RESOURCES LTD.

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

Years ended December 31,

 

 

 

Notes

 

2019

 

2018

 

Operating Activities

 

 

 

 

 

 

 

Net income (loss) for the year

 

 

 

$

(36,212

)

$

315,956

 

Adjustment for Non-cash Items

 

 

 

 

 

 

 

Other (gains) losses

 

7

 

1,795

 

—

 

Depreciation

 

 

 

31,697

 

31,041

 

Share-based payments

 

14

 

4,716

 

2,011

 

Unrealized foreign exchange loss

 

 

 

11,130

 

23,849

 

Finance costs

 

23

 

18,290

 

39,686

 

Interest income

 

 

 

(6,556

)

(898

)

Income tax expense

 

16(a)

 

1,144

 

27,467

 

Deferred income tax expense (recovery)

 

16(a)

 

3,809

 

(20,769

)

Income tax paid

 

 

 

(1,183

)

(17,846

)

Cash Provided Before Non-Cash Working Capital Items

 

 

 

28,630

 

403,157

 

Change in amounts receivable

 

 

 

51,764

 

(43,395

)

Change in inventory

 

 

 

(10,437

)

(2,245

)

Change in vanadium products

 

7

 

(6,038

)

—

 

Change in prepaid expenses

 

 

 

1,045

 

(1,981

)

Change in accounts payable and accrued liabilities

 

 

 

74,318

 

(3,462

)

Net Cash Provided by Operating Activities

 

 

 

139,282

 

352,074

 

 

 

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

 

 

Repayment of arbitration settlement

 

 

 

—

 

(2,509

)

Receipt of long-term debt

 

 

 

—

 

191,790

 

Repayment of long-term debt

 

11

 

(124,994

)

(318,786

)

Debt issue costs, interest, guarantee fees and other associated fees paid

 

 

 

(9,873

)

(62,598

)

Interest received

 

 

 

6,543

 

821

 

Change in restricted cash

 

 

 

(78

)

4,166

 

Issuance of common shares and warrants

 

14

 

13,176

 

9,330

 

Net Cash (Used in) Financing Activities

 

 

 

(115,226

)

(177,786

)

 

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

 

 

Mine properties, plant and equipment

 

 

 

(50,386

)

(18,989

)

 

 

 

 

 

 

 

 

Net Cash (Used in) Investing Activities

 

 

 

(50,386

)

(18,989

)

Effect of foreign exchange on cash

 

 

 

(13,781

)

(3,836

)

Net Change in Cash

 

 

 

(40,111

)

151,463

 

Cash position — beginning of the year

 

 

 

206,188

 

54,725

 

Cash Position — end of the year

 

 

 

$

166,077

 

$

206,188

 

 

—The accompanying notes form an integral part of the consolidated financial statements—

 

4

 

LARGO RESOURCES LTD.

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

1)        Nature of operations

 

The Company is engaged in the acquisition, exploration, development and operation of mining and exploration properties located in Brazil and Canada. Substantially all of the Company’s efforts are devoted to operating and expanding the Maracás Menchen Mine. While the Company’s Maracás Menchen Mine has reached commercial production, future changes in market conditions and feasibility estimates could result in the Company’s mineral resources not being economically recoverable.

 

The Company is a corporation governed by the Business Corporations Act (Ontario) and domiciled in Canada whose shares are listed on the Toronto Stock Exchange (“TSX”). The head office, principal address and records office of the Company are located at 55 University Avenue, Suite 1105, Toronto, Ontario, Canada M5J 2H7.

 

2)        Statement of compliance

 

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) applicable to a going concern. The significant accounting policies applied in these consolidated financial statements are presented in note 4 and are based on IFRS effective as at December 31, 2019. Changes in accounting policies effective January 1, 2019 are presented in note 3.

 

The consolidated financial statements were approved by the Board of Directors of the Company on March 20, 2020.

 

3)        Changes in accounting policies

 

The Company has adopted IFRS 16, Leases (“IFRS 16”) from January 1, 2019.

 

IFRS 16, Leases

 

IFRS 16, Leases was issued by the IASB on January 13, 2016, and replaces IAS 17, Leases.  It is effective for annual periods beginning on or after January 1, 2019. IFRS 16 eliminates the current dual accounting model for lessees, which distinguishes between on-balance sheet finance leases and off-balance sheet operating leases. Instead, IFRS 16 requires a single, on-balance sheet accounting model that is similar to current finance lease accounting. Leases becomes an on-balance sheet liability that attracts interest, together with a new asset.

 

The Company adopted IFRS 16 using the modified retrospective approach and was required to recognize an adjustment to opening equity at the date of adoption, January 1, 2019, should one be required. The Company has elected to apply the IFRS 16 definition of a lease to all of its contracts, with the exception of short-term leases (i.e. those with a term less than or equal to 12 months) and leases of low-value items (i.e. those individual items with a value less than or equal to US$5) for which the Company applies the elections available in IFRS 16. In addition, at the date of adoption of IFRS 16, the Company applied the practical expedient to account for any identified leases with a remaining term of 12 months or less as short-term leases.

 

The Company has performed an evaluation of the impact of IFRS 16 on its consolidated financial statements and based on the analysis performed, has identified a number of leases which have a remaining term of 12 months or less at January 1, 2019. The Company has accounted for these as short-term leases with no adjustments upon adoption of IFRS 16. The Company did not have any significant adjustments upon adoption of IFRS 16. The Company’s financial commitments at January 1, 2019 are the same as at December 31, 2018, and thus, no reconciliation is required.

 

4)        Basis of preparation, significant accounting policies, and future accounting changes

 

These consolidated financial statements have been prepared on a historical cost basis except for certain financial instruments and vanadium products which are measured at fair value and certain inventory balances carried at net realizable value. In addition, these consolidated financial statements have been prepared using the accrual basis of accounting except for cash flow information.

 

5

 

LARGO RESOURCES LTD.

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

The preparation of financial statements in accordance with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgment in applying the Company’s accounting policies.

 

These consolidated financial statements are presented in thousands of Canadian dollars, unless otherwise noted.  References to the symbol “R$” mean the Brazilian real, the official currency of Brazil, and references to the symbol “US$” mean the U.S. dollar.

 

a)                 Basis of consolidation

 

Subsidiaries consist of entities over which the Company is exposed to, or has rights to, variable returns as well as the ability to affect those returns through the power to direct the relevant activities of the entity. Subsidiaries are consolidated from the date control is transferred to the Company and are de-consolidated from the date control ceases. The consolidated financial statements include all the assets, liabilities, revenues, expenses and cash flows of the Company and its subsidiaries after eliminating inter-entity balances and transactions.

 

The consolidated financial statements include the financial condition and results of operations of the Company and its subsidiaries as outlined below:

 

Name

 

Property

 

December 31,
2019

 

December 31,
 2018

 

Arrangement

 

Accounting 
Method

 

Vanádio de Maracás S.A.

 

Maracás Menchen Mine (Brazil)

 

99.94

%

99.94

%

Subsidiary

 

Consolidation

 

Mineração Campo Alegre de Lourdes Ltda.

 

Campo Alegre Project (Brazil)

 

100

%

100

%

Subsidiary

 

Consolidation

 

Mineração Currais Novos Ltda.

 

Currais Novos Project (Brazil)

 

100

%

100

%

Subsidiary

 

Consolidation

 

Largo Resources (Yukon) Ltd.

 

Northern Dancer Project (Canada)

 

100

%

100

%

Subsidiary

 

Consolidation

 

Largo Commodities Holding Ltd.

 

N/A

 

100

%

100

%

Subsidiary

 

Consolidation

 

Largo Commodities Trading Ltd.

 

N/A

 

100

%

100

%

Subsidiary

 

Consolidation

 

Largo Resources USA Inc.

 

N/A

 

100

%

100

%

Subsidiary

 

Consolidation

 

 

b)                 Functional and presentation currency

 

The consolidated financial statements are presented in Canadian dollars which is the functional and reporting currency of the Company. The functional currency of the Company’s Brazilian subsidiaries is the Brazilian real, the functional currency of the Company’s Canadian subsidiary is the Canadian dollar, the functional currency of Largo Commodities Holding Ltd. and Largo Commodities Trading Ltd. is the Euro and the functional currency of Largo Resources USA Inc. is the U.S. dollar.

 

In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are translated at the rates prevailing at that date. Non-monetary items denominated in foreign currencies are translated at the rates prevailing on the transaction dates. Income and expenses are translated at the average exchange rates for the period where these approximate the rates on the dates of transactions.

 

Exchange differences are recognized in the consolidated statement of income (loss) and comprehensive income (loss) in the period in which they arise except for:

 

·              exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings; and

 

6

 

LARGO RESOURCES LTD.

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

·              exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognized initially in other comprehensive income and reclassified from equity to profit or loss on disposal or partial disposal of the net investment.

 

All other foreign exchange gains and losses are presented in the consolidated statement of income (loss) and comprehensive income (loss) within “foreign exchange (loss) gain”.

 

The financial statements of subsidiaries that do not have the Canadian dollar as the functional currency are translated into Canadian dollars as follows: assets and liabilities — at the closing rate at the date of the statement of financial position; income and expenses — at the average rate for the period (if this is considered a reasonable approximation to actual rates) or at the rate on the date of transaction. All resulting changes are recognized in other comprehensive income (loss) as foreign currency translation adjustments.

 

c)                  Significant accounting policies

 

1.                  Cash and cash equivalents

 

Cash and cash equivalents comprise cash on hand and call deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. At December 31, 2019 and 2018, the Company held no cash equivalents.

 

2.                  Inventories

 

Vanadium flake inventories, work-in-process inventory, stockpiles and tungsten concentrate are measured at the lower of weighted average production cost and net realizable value. Warehouse materials are measured at the lower of average purchase cost and net realizable value. Net realizable value is calculated as the difference between the estimated selling price and estimated costs to complete processing into a saleable form and variable selling expenses.

 

Production costs include the cost of materials, labour, mine site production overheads and depreciation to the applicable stage of processing.

 

The cost of ore stockpiles is increased based on the related current cost of production for the period and decreases in stockpiles are charged to cost of sales using the weighted average cost per tonne. Stockpiles are segregated between current and non-current inventories in the consolidated statement of financial position based on the period of planned usage.

 

Provisions are recorded to reduce the carrying amount of inventory to net realizable value to reflect changes in grades, quantity or other economic factors and to reflect current intentions for the use of redundant or slow-moving items. Provisions for redundant and slow-moving items are made by reference to specific items of inventory. The Company reverses write-downs where there is a subsequent increase in net realizable value and where the inventory is still on hand.

 

Spare parts, stand-by and servicing equipment held are generally classified as inventories. Major capital spare parts and stand-by equipment (insurance spares) are classified as a component of mine properties, plant and equipment.

 

3.                  Vanadium products

 

Vanadium products are initially recorded at cost on the date that control of the vanadium products passes to the Company. Cost is calculated as the purchase price, excluding transaction fees, which are expensed as incurred. Subsequent to initial recognition, vanadium products are measured at fair value at each reporting period end. Fair value is determined based on the most recent observable vanadium market transaction data as reported by a recognized provider of global metal prices. Gains and losses arising on the sale of the vanadium products and fair value gains and losses are recorded in the consolidated

 

7

 

LARGO RESOURCES LTD.

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

statements of income (loss) and comprehensive income (loss) as other gains (losses) in the period in which they arise.

 

4.                  Mineral exploration, evaluation and development properties

 

·                     Exploration and evaluation properties

 

Expenditures on exploration and evaluation activities are expensed to exploration and evaluation costs in the consolidated statement of income (loss) and comprehensive income (loss). The cost of acquiring prospective properties and exploration rights is capitalized to exploration and evaluation properties in the consolidated statement of financial position.

 

Post-acquisition exploration and evaluation costs relate to the initial search for deposits with economic potential and to detailed assessments of deposits or other projects that have been identified as having economic potential.

 

Once an economically viable reserve has been determined for an area and the decision to proceed with development has been approved, exploration and evaluation assets attributable to that area are first tested for impairment and then reclassified to development properties. Subsequent expenditures are capitalized to development properties.

 

Subsequent recovery of the resulting carrying value depends on successful development or sale of the undeveloped project. If impairment indicators are identified and an impairment test is performed, all irrecoverable costs will be written off.

 

·                     Development properties

 

When economically viable reserves have been determined and the decision to proceed with development has been approved, the expenditures related to construction are capitalized to development properties in the consolidated statement of financial position. Costs associated with the commissioning of new assets in the period before they are operating in the way intended by management, are capitalized, net of any pre-production revenues. Interest on borrowings related to the construction and development of qualifying assets are capitalized until substantially all the activities required to make the asset ready for its intended use are complete.

 

5.                  Mine properties, plant and equipment

 

Upon completion of mine construction, development property assets are transferred to mine properties, plant and equipment. Items of plant and equipment and mine properties are stated at cost, less accumulated depreciation and accumulated impairment losses.

 

The initial cost of an asset comprises its purchase price or construction cost, any costs directly attributable to bringing the asset into operation, the initial estimate of the rehabilitation obligation, and for qualifying assets, borrowing costs. The purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration given to acquire or construct the asset and includes the direct charges associated with bringing the asset to the location and condition necessary for putting it into use. The capitalized value of a finance lease is also included within mine properties, plant and equipment.

 

When a mine construction project moves into the production stage, the capitalization of certain mine construction costs ceases and costs are either regarded as inventory or expensed, except for costs which qualify for capitalization relating to mining asset additions or improvements, or mineable reserve development.

 

When parts of an item of plant and equipment have different useful lives, they are accounted for as separate items (major components) of equipment.

 

8

 

LARGO RESOURCES LTD.

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

6.                  Depreciation

 

Effective from the point an asset is available for its intended use, mine properties, plant and equipment are depreciated using either the straight line or units-of-production methods over the shorter of the estimated economic life of the asset or the mining operation. Depreciation and amortization are determined based on the method which best represents the use of the assets.

 

The reserve and resource estimates for each mining operation are the prime determinants of the life of a mine. In general, when the useful life of mine properties, plant and equipment is akin to the life of the mining operation and the ore body’s mineralization is reasonably well defined, the asset is depreciated on a units-of-production basis over its proven and probable mineral reserves. Non-reserve material may be included in depreciation calculations in limited circumstances where there is a high degree of confidence in its economic extraction. The Company evaluates the estimate of mineral reserves and resources at least on an annual basis and adjusts the units-of-production calculation prospectively. In 2019 and 2018, the Company has not incorporated any non-reserve material in its depreciation calculations on a units-of-production basis. When mine properties, plant and equipment are depreciated on a straight-line basis, the useful life of the asset is determined based on its estimated economic life and the most recent life of mine (“LOM”) plan. LOM plans are typically developed annually and are based on management’s current best estimates of optimized mine and processing plans, future operating costs and the assessment of capital expenditures of a mine site. Any change in the useful life is adjusted prospectively.

 

The estimated useful lives for machinery and equipment ranges from 10 to 30 years. Computers, office equipment and vehicles are depreciated using the declining balance method using rates of 20%, 10% and 20%, respectively.

 

Amounts related to capitalized costs of exploration and evaluation assets, development properties and construction in progress are not amortized as the assets are not available for use.

 

Capitalized stripping costs are depreciated over the reserves that directly benefit from the specific stripping activity using the units-of-production method. Capitalized borrowing costs are amortized over the useful life of the related asset. Residual values, useful lives and amortization methods are reviewed at least annually and adjusted if appropriate. The impact of changes to the estimated useful lives, change in depreciation method or residual values is accounted for prospectively.

 

7.                  Impairment of non-financial assets

 

The carrying values of capitalized exploration and evaluation properties, development properties and mine properties, plant and equipment are assessed for impairment when indicators of such impairment exist. If any indication of impairment exists an estimate of the asset’s recoverable amount is calculated. The recoverable amount is determined as the higher of the fair value less costs of disposal (“FVLCD”) of the asset and the asset’s value in use (“VIU”).

 

Impairment is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. If this is the case, the individual assets of the Company are grouped together into cash generating units (“CGUs”) for impairment purposes. Such CGUs represent the lowest level for which there are separately identifiable cash inflows that are largely independent of the cash flows from other assets or other groups of assets. This generally results in the Company evaluating its non-financial assets on a mine or project basis.

 

If the carrying amount of the asset or CGU exceeds its recoverable amount, the asset or CGU is impaired, and an impairment loss is charged to the consolidated statement of income (loss) and comprehensive income (loss) so as to reduce the carrying amount to its recoverable amount.

 

9

 

LARGO RESOURCES LTD.

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

A previously recognized impairment loss is reversed only if there has been a change in the factors which gave rise to the triggering event. If this is the case, the carrying amount of the asset is increased to its recoverable amount. The increased amount cannot exceed the carrying amount that would have been determined, net of depreciation/amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the consolidated statement of income (loss) and comprehensive income (loss).

 

8.                  Borrowing costs

 

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

 

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization. All other borrowing costs are recognized in the consolidated statement of income (loss) and comprehensive income (loss) in the period in which they are incurred.

 

9.                  Revenues

 

Under the terms of the Company’s vanadium sales agreement, vanadium prices are provisionally set at the time revenue is recognized based upon market commodity prices. Revenue, and a trade receivable, is recognized at the time of shipment, which is when control of the vanadium product passes to the customer and the Company’s performance obligation is satisfied. Revenue is measured using market prices on the date of transfer of control of the vanadium product. Changes in the measurement of the trade receivable, which is re-measured once the date that final selling prices will be determined has been set by the Company’s off-take partner, Glencore International AG, are also recognized as a component of revenues in the period in which the final price is determined. Variations can occur between the price recorded on the date of revenue recognition and the actual final price under the terms of the contract due to changes in market prices.

 

10.           Share-based payments

 

Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 14.

 

The fair value determined at the grant date of the equity-settled share-based payments is expensed or capitalized, as appropriate, on a graded vesting basis over the period during which the employee becomes unconditionally entitled to equity instruments, based on the Company’s estimate of equity instruments that will eventually vest. At the end of each reporting period, the Company revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the equity reserve.

 

Equity-settled share-based payment transactions with parties other than employees are measured at the fair value of the goods or services received, except where that fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service.

 

For those options and warrants that expire after vesting, the recorded value is transferred to deficit.

 

10

 

LARGO RESOURCES LTD.

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

11.           Taxation

 

Income and deferred income tax expense or recovery is comprised of current and deferred tax. Current and deferred tax are recognized in the consolidated statement of income (loss) and comprehensive income (loss) except to the extent that it relates to an asset acquisition, or items recognized directly in equity or in other comprehensive income (loss).

 

·                     Current tax

 

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using the tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of the previous years.

 

·                     Deferred tax

 

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such deferred tax assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

 

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries, except where the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

 

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

 

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

 

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its tax assets and liabilities on a net basis.

 

12.           Financial instruments

 

Financial instruments are recognized on the consolidated statement of financial position on the trade date, the date on which the Company or its subsidiaries become party to the contractual provisions of the financial instrument. All financial instruments are required to be classified and measured at fair value on initial recognition. The Company recognizes financial assets and financial liabilities on the date the Company becomes a party to the contractual provisions of the instruments. A financial asset is derecognized either when the Company has transferred substantially all the risks and rewards of

 

11

 

LARGO RESOURCES LTD.

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

ownership of the financial asset or when cash flows expire. A financial liability is derecognized when the obligation specified in the contract is discharged, cancelled or expired. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the consolidated statement of Income (loss) and comprehensive income (loss). Certain financial instruments are recorded at fair value in the consolidated statements of financial position.

 

·                     Non-derivative financial instruments

 

Non-derivative financial instruments are recognized initially at fair value plus attributable transaction costs, where applicable, for financial instruments not classified as fair value through profit or loss. Subsequent to initial recognition, non-derivative financial instruments are classified and measured as described below.

 

Financial assets at fair value through profit or loss (“FVTPL”)

 

Cash, restricted cash and trade receivables (refer to revenues accounting policy in note 4(c) part 9 and to note 21(a)) are classified as financial assets at FVTPL and are measured at fair value. Cash includes short-term investments with initial maturities of three months or less. The unrealized gains or losses related to changes in fair value of cash and restricted cash are reported in the consolidated statement of income (loss) and comprehensive income (loss). Changes in the value of trade receivables are recognized in revenues in the consolidated statement of income (loss) and comprehensive income (loss).

 

Amortized cost

 

Amounts receivable, excluding trade receivables, are classified as and measured at amortized cost using the effective interest rate (“EIR”) method, less expected credit losses. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. EIR amortization is included in finance costs in the consolidated statement of income (loss) and comprehensive income (loss).

 

Non-derivative financial liabilities

 

Accounts payable and accrued liabilities, long-term debt, and other long-term liabilities are classified as and accounted for at amortized cost, using the EIR method. The amortization of long-term debt issue costs is calculated using the EIR method. Gains and losses are recognized in the consolidated statement of income (loss) and comprehensive income (loss) when the liabilities are derecognized, as well as through the EIR amortization process. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR.

 

·                     Derivative financial instruments

 

The Company may hold derivative financial instruments to hedge its risk exposure to fluctuations of other currencies compared to the Canadian dollar and the U.S. dollar. All derivative instruments not designated in a hedge relationship that qualifies for hedge accounting are classified as financial instruments at FVTPL.

 

Derivative financial instruments at FVTPL, including embedded derivatives requiring separation from its host, are recorded in the consolidated statements of financial position at fair value.

 

Changes in estimated fair value of non-hedge derivatives at each reporting date are included in the consolidated statement of income (loss) and comprehensive income (loss).

 

12

 

LARGO RESOURCES LTD.

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

Embedded derivatives in financial liabilities measured at amortized cost are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related.

 

Fair value of financial instruments

 

The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include using recent arm’s length market transactions; reference to the current fair value of another instrument that is substantially the same; discounted cash flow analysis or other valuation models.

 

Impairment of financial assets

 

The Company recognizes loss allowances for expected credit losses (“ECLs”) on its financial assets measured at amortized cost. Loss allowances for other receivables are always measured at an amount equal to lifetime ECL. Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument. The maximum period considered when estimating ECLs is the maximum contractual period over which the Company is exposed to credit risk.

 

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECL, the Company considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Company’s historical experience and informed credit assessment and including forward-looking information. The Company assumes that the credit risk on a financial asset has increased significantly if it is more than 60 days past due.

 

The Company considers a financial asset to be in default when the debtor is unlikely to pay its credit obligations to the Company in full or if the financial asset is more than 120 days past due.

 

·                     Measurement of ECLs

 

ECLs are a probability-weighted estimate of credit losses.  Credit losses are measured as the present value of all cash shortfalls, which is the difference between the cash flows due to the Company and the cash flows expected to be received.

 

·                     Credit-impaired financial assets

 

At each reporting date, the Company assesses whether financial assets carried at amortized cost are credit-impaired. A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred, such as a default or being more than 120 days past due.

 

·                     Presentation of allowance for ECLs

 

Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets.

 

·                     Write-off

 

The gross carrying amount of a financial asset carried at amortized cost is written off, either partially or in full, to the extent that there is no realistic prospect of recovery.

 

13

 

LARGO RESOURCES LTD.

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

13.           Provisions

 

·                     General

 

Provisions are recognized when (a), the Company has a present obligation (legal or constructive) as a result of a past event, and (b), it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The expense relating to any provision is presented in the consolidated statement of income (loss) and comprehensive income (loss), net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized in the consolidated statement of income (loss) and comprehensive income (loss).

 

·                     Environmental rehabilitation

 

The Company records the present value of estimated costs of legal and constructive obligations required to restore operating locations in the period in which the obligation is incurred. The nature of these restoration activities includes dismantling and removing structures, rehabilitating mines and tailings ponds, dismantling operating facilities, closure of plant and waste sites, and restoration, reclamation and re-vegetation of affected areas.

 

The obligation generally arises when the asset is installed or the ground / environment is disturbed at the production location. When the liability is initially recognized, the present value of the estimated cost is capitalized by increasing the carrying amount of the related asset. Over time, the discounted liability is increased for the change in present value based on the discount rates that reflect current market assessments and the risks specific to the liability. The periodic unwinding of the discount is recognized in the consolidated statement of income (loss) and comprehensive income (loss). Additional disturbances or changes in rehabilitation costs will be recognized as additions or charges to the corresponding assets and rehabilitation liability when they occur. For closed sites, changes to estimated costs are recognized immediately in the consolidated statement of income (loss) and comprehensive income (loss).

 

14.           Earnings (loss) per share

 

Earnings (loss) per share is based on the weighted average number of common shares of the Company outstanding during the period. The diluted earnings (loss) per share reflects the potential dilution of common share equivalents, such as outstanding share options, warrants and restricted share units, in the weighted average number of common shares outstanding during the period, if dilutive. In the Company’s case, diluted loss per share is the same as basic loss per share in the current period presented as the effects of including all convertible securities would be anti-dilutive.

 

15.           Leases

 

Post-IFRS 16

 

At the inception of a contract, the Company assess whether a contract is, or contains, a lease.  A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Company assesses whether:

 

·                     the contract involves the use of an identified asset — this may be specified explicitly or implicitly and should be physically distinct or represent substantially all of the capacity of a physically distinct asset.  If the supplier has a substantive substitution right, then the asset is not identified;

 

14

 

LARGO RESOURCES LTD.

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

·                     the Company has the right to obtain substantially all of the economic benefits from the use of the assert throughout the period of use; and

 

·                      the Company has the right to direct the use of the asset. The Company has this right when it has the decision-making rights that are most relevant to changing how and for what purpose the asset is used. In rare cases where the decision about how and for what purpose the asset is used is predetermined, the Company has the right to direct the use of the asset if either:

 

·                     the Company has the right to operate the asset; or

 

·                     the Company designed the asset in a way that predetermines how and for what purpose it will be used.

 

This policy is applied to existing contracts at January 1, 2019 and contracts entered into, or changed, on or after January 1, 2019.

 

At inception or on reassessment of a contract that contains a lease component, the Company allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices. However, for leases of land and buildings in which it is a lessee, the Company has elected not to separate non-lease components and account for the lease and non-lease components as a single lease component.

 

The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The right-of-use asset is subsequently depreciated from the commencement date to the earlier of the end of its useful life or the end of the lease term. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

 

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate.

 

The lease liability is measured at amortized cost using the effective interest method and is remeasured when there is a change in future lease payments arising from a change in an index or rate or if the Company changes its assessment of whether it will exercise a purchase, extension or termination option. When the lease liability is remeasured, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in the consolidated statements of income (loss) and comprehensive income (loss) if the carrying amount of the right-of-use asset has been reduced to zero.

 

Lease payments for short-term leases, leases of low-value assets and variable lease payments not included in the measurement of the lease liability are classified as cash flows from operating activities. Cash payments for the principal portion of the lease liability are included in financing activities and cash payments for the interest paid portion of the lease liability are included in debt issue costs, interest, guarantee fees and other associated fees paid in financing activities.

 

The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets. The Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

 

Pre-IFRS 16

 

The determination of whether an arrangement is, or contains, a lease is based on the substance of the contractual arrangement at inception date, including whether the arrangement contains the use of a specific asset and the right to use that asset. Where the Company receives substantially all the risks and

 

15

 

LARGO RESOURCES LTD.

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

rewards of ownership of the asset, these arrangements are classified as finance leases. Finance leases are recorded as an asset with a corresponding liability at an amount equal to the lower of the fair value of the leased asset and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance costs using the effective interest method, with the interest element of the lease charged to the consolidated statements of loss and comprehensive loss as a finance cost. Mine properties, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset and the lease term.

 

All other leases are classified as operating leases. Operating lease payments are recognized in the consolidated statements of loss and comprehensive loss on a straight-line basis over the lease term.

 

16.           Operating segments

 

The Company is engaged in mining, exploration and development of mineral properties, primarily in Brazil and Canada. The segments presented reflect the way in which the Company’s management reviews its business performance. Operating segments are reported in a manner consistent with the internal reporting provided to executive management who act as the chief operating decision-maker. Executive management is responsible for allocating resources and assessing performance of the operating segments. The Company’s operating segments are its mine properties segment and exploration and evaluation properties segment.

 

d)                 Critical judgements and estimation uncertainties

 

The preparation of consolidated financial statements in conformity with IFRS requires the Company’s management to make judgments, estimates and assumptions about the carrying amount of its assets and liabilities that are not readily apparent from other sources. These estimates and assumptions are based on management’s best knowledge of the relevant facts and circumstances taking into account previous experience, but actual results may differ from the amounts included in the consolidated financial statements.

 

The following are the critical judgments and areas involving estimates that management has made in the process of applying the Company’s accounting policies and that have the most significant effect on the amounts recognized in the consolidated financial statements.

 

1.                  Determination of mineral reserve estimates

 

The estimates for mineral reserves and mineral resources are determined based on a professional evaluation using accepted international standards for the assessment of mineral reserves. The assessment involves geological and geophysical studies and economic data and the reliance on a number of assumptions. The estimates of the reserves may change based on additional knowledge gained subsequent to the initial assessment. This may include additional data available from continuing exploration, results from the reconciliation of actual mining production data against the original reserve estimates, or the impact of economic factors such as changes in the price of commodities or the cost of components of production.

 

A number of accounting estimates are impacted by the mineral reserve estimates:

 

·                     Capitalization and depreciation of stripping costs;

 

·                     Determination of the useful life of mine properties, plant and equipment and measurement of the depreciation expense;

 

·                     Impairment analysis of non-financial assets including evaluation of estimated future cash flows of CGUs; and

 

·                     Estimates of the timing of outlays for environmental rehabilitation obligations.

 

16

 

LARGO RESOURCES LTD.

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

A change in the original estimate of reserves could have a material effect in the future on the Company’s financial position and results of operations.

 

2.                  Valuation of mine properties, plant and equipment, development properties and exploration and evaluation properties

 

The Company carries its mine properties, plant and equipment, development properties and exploration and evaluation properties at cost less accumulated depreciation and any provision for impairment.

 

The Company undertakes a review of the carrying values of mine properties, plant and equipment, development properties and exploration and evaluation properties whenever events or changes in circumstances indicate that their carrying values may exceed their estimated net recoverable amounts determined by reference to estimated future operating results and, for mine properties, discounted net future cash flows. An impairment loss is recognized when the carrying value of those assets is not recoverable. In undertaking this review, management of the Company is required to make significant estimates of, amongst other things, future production and sale volumes, metal prices, foreign exchange rates, reserve and resource quantities, future operating and capital costs and reclamation costs to the end of the mine’s life. These estimates are subject to various risks and uncertainties which may ultimately have an effect on the expected recoverability of the carrying values of the Company’s mine properties, plant and equipment (see note 8).

 

3.                  Estimates of provisions for environmental rehabilitation

 

The Company has obligations for environmental rehabilitation related to its mine and development properties. The future obligations for mine closure activities are estimated by the Company using mine closure plans or other similar studies which outline the requirements that will be carried out to meet the obligations. Because the obligations are dependent on the Brazilian laws and regulations in which the mines operate, the requirements could change as a result of amendments in the laws and regulations relating to environmental protection and other legislation affecting resource companies.

 

As the estimate of obligations is based on future expectations, a number of estimates and assumptions are made by management in the determination of environmental rehabilitation provision. The environmental rehabilitation provisions are more uncertain the further into the future the mine closure activities are to be carried out.

 

The Company’s policy for recording reclamation and other closure provisions is to establish provisions for future costs based on the present value of the future cash flows required to satisfy the environmental obligations. This provision is updated as the estimate for future closure costs change. The amount of the present value of the provision is added to the cost of the related development asset or mine property and will be depreciated over the life of the mine. The provision is accreted to its future value over the life of mine through a charge to finance costs in the consolidated statement of income (loss) and comprehensive income (loss). Refer to note 12(c).

 

4.                  Current and deferred taxes

 

The Company is subject to income and other taxes in various jurisdictions. Significant judgment is required in determining the Company’s provisions for taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Company recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. The determination of the Company’s income and other tax liabilities requires interpretation of complex laws and regulations often involving multiple jurisdictions. The Company’s interpretation of taxation law as applied to transactions and activities may not coincide with the interpretation of the tax authorities. All tax filings are subject to audit and potential reassessment subsequent to the financial statement reporting period. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the tax related

 

17

 

LARGO RESOURCES LTD.

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

accruals and deferred income tax provisions in the period in which such determination is made. Any estimates for value added and withholding taxes have been included in accounts payable and accrued liabilities. Based on the Company’s history of taxable profits and management’s assessment of the likelihood of future taxable profits, a deferred income tax asset was recognized at December 31, 2019 for non-capital losses (refer to note 16).

 

5.                  Contingencies

 

Refer to notes 12 and 19.

 

5)        Amounts receivable

 

 

 

December 31,
2019

 

December 31,
2018

 

Trade receivables

 

$

—

 

$

55,011

 

Current taxes recoverable — Brazil

 

7,719

 

7,369

 

Current taxes recoverable — Canada

 

53

 

64

 

Other receivables

 

247

 

115

 

Total

 

$

8,019

 

$

62,559

 

 

At December 31, 2019, the Company’s trade receivables was in a liability position of $87,782 and was classified as trade payables (refer to notes 10 and 21(a)) (December 31, 2018 — trade receivables of $55,011).

 

6)        Inventory

 

 

 

December 31,
2019

 

December 31,
2018

 

Vanadium flake

 

$

7,349

 

$

3,475

 

Work-in-process

 

2,632

 

1,553

 

Stockpiles

 

1,843

 

1,110

 

Warehouse materials

 

11,621

 

8,182

 

Tungsten concentrate

 

—

 

52

 

Total

 

$

23,445

 

$

14,372

 

 

During the year ended December 31, 2019, the Company recognized in direct mine and mill costs (note 23) the benefit of previously recorded net realizable value write-downs of $nil (year ended December 31, 2018 —$122). As inventory is sold, previously recorded net realizable value write-downs are reclassified from inventory write-down to direct mine and mill costs (note 23).

 

7)        Vanadium products

 

During the year ended December 31, 2019, the Company purchased ferrovanadium and vanadium pentoxide and sold vanadium pentoxide for a net cost of US$4,619 ($6,038).

 

Vanadium products are measured at fair value based on Level 2 fair value inputs. At December 31, 2019, the Company remeasured its vanadium products at a fair value of $4,227, using an average ferrovanadium price of between US$22.23 and US$23.92 per kilogram and an average vanadium pentoxide price of approximately US$11.74 per kilogram (US$5.33 per pound). This resulted in a remeasurement loss of $1,494 which is recognized in other gains (losses) in the consolidated statements of income (loss) and comprehensive income (loss).

 

18

 

LARGO RESOURCES LTD.

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

8)        Mine properties, plant and equipment

 

At December 31, 2019 and December 31, 2018, the Company’s economic interest in the Maracás Menchen Mine totaled 99.94%. The remaining 0.06% economic interest is held by Companhia Baiana de Pesquisa Mineral (“CBPM”) owned by the state of Bahia. CBPM retains a 3% net smelter royalty (“NSR”) in the Maracás Menchen Mine. The property is also subject to a royalty of 2% on certain operating costs under the Brazilian Mining Act. Under a separate agreement, Anglo Pacific Plc receives a 2% NSR in the Maracás Menchen Mine.

 

The net book value of the Company’s mine properties, plant and equipment at December 31, 2019 by geographic location is: Brazil - $221,969 (December 31, 2018 - $219,290); Canada - $26,374 (December 31, 2018 - $28,163).

 

 

 

Office and
Computer
Equipment

 

Vehicles

 

Mine
Properties

 

Machinery
and
Equipment

 

Construction
In Progress

 

Total

 

COST

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2017

 

$

1,055

 

$

513

 

$

123,317

 

$

257,052

 

$

1,237

 

$

383,174

 

Additions

 

218

 

—

 

11,361

 

764

 

8,137

 

20,480

 

Tax credits

 

—

 

—

 

(157

)

(5,767

)

—

 

(5,924

)

Disposals

 

—

 

—

 

—

 

(4,509

)

—

 

(4,509

)

Reclassifications

 

—

 

—

 

—

 

2,189

 

(2,189

)

—

 

Effects of changes in foreign exchange rates

 

(65

)

(37

)

(6,402

)

(18,350

)

(317

)

(25,171

)

Balance at December 31, 2018

 

$

1,208

 

$

476

 

$

128,119

 

$

231,379

 

$

6,868

 

$

368,050

 

Additions

 

279

 

—

 

11,292

 

5,577

 

38,363

 

55,511

 

Tax credits

 

—

 

—

 

—

 

(3,579

)

—

 

(3,579

)

Disposals

 

(130

)

—

 

—

 

(3,602

)

—

 

(3,732

)

Reclassifications

 

—

 

—

 

—

 

31,040

 

(31,040

)

—

 

Effects of changes in foreign exchange rates

 

(80

)

(38

)

(7,946

)

(18,480

)

(2,332

)

(28,876

)

Balance at December 31, 2019

 

$

1,277

 

$

438

 

$

131,465

 

$

242,335

 

$

11,859

 

$

387,374

 

ACCUMULATED DEPRECIATION

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2017

 

$

647

 

$

513

 

$

21,019

 

$

78,777

 

$

—

 

$

100,956

 

Depreciation

 

108

 

—

 

6,205

 

24,185

 

—

 

30,498

 

Disposals

 

—

 

—

 

—

 

(1,849

)

—

 

(1,849

)

Effects of changes in foreign exchange rates

 

(37

)

(37

)

(1,219

)

(7,715

)

—

 

(9,008

)

Balance at December 31, 2018

 

$

718

 

$

476

 

$

26,005

 

$

93,398

 

$

—

 

$

120,597

 

Depreciation

 

140

 

—

 

8,033

 

22,807

 

—

 

30,980

 

Disposals

 

(130

)

—

 

—

 

(3,602

)

—

 

(3,732

)

Effects of changes in foreign exchange rates

 

(46

)

(38

)

(503

)

(8,227

)

—

 

(8,814

)

Balance at December 31, 2019

 

$

682

 

$

438

 

$

33,535

 

$

104,376

 

$

—

 

$

139,031

 

NET BOOK VALUE

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2018

 

$

490

 

$

—

 

$

102,114

 

$

137,981

 

$

6,868

 

$

247,453

 

At December 31, 2019

 

$

595

 

$

—

 

$

97,930

 

$

137,959

 

$

11,859

 

$

248,343

 

 

19

 

LARGO RESOURCES LTD.

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

9)        Leases

 

At December 31, 2019, the Company did not have any right-of-use assets or lease liabilities.

 

 

 

Year ended

 

 

 

December 31,
2019

 

Recognized in the consolidated statements of income (loss) and comprehensive income (loss):

 

 

 

Expenses relating to short-term leases

 

$

18,182

 

 

 

 

 

Recognized in the consolidated statements of cash flows:

 

 

 

Total cash outflow for leases

 

$

16,711

 

 

10)          Accounts payable and accrued liabilities

 

 

 

December 31,
2019

 

December 31,
2018

 

Trade payables

 

$

87,782

 

$

—

 

Accounts payable

 

10,067

 

24,107

 

Accrued liabilities

 

3,077

 

3,107

 

Accrued financial costs

 

—

 

1,008

 

Other taxes

 

434

 

5,239

 

Total

 

$

101,360

 

$

33,461

 

 

At December 31, 2019, the Company’s trade receivables was in a liability position of $87,782 and was classified as trade payables (December 31, 2018 — trade receivables of $55,011 (refer to notes 5 and 21(a))).

 

11)          Long-term debt

 

 

 

December 31,
2019

 

December 31,
2018

 

Total debt

 

$

—

 

$

126,503

 

Current portion of long-term debt(1)

 

$

—

 

$

126,503

 

 

(1)    The gross amount of the current portion of the long-term debt excludes unamortized deferred transaction costs of $nil at December 31, 2019 (December 31, 2018 — $9,149).

 

 

 

Cash flows

 

Non-cash

 

 

 

December 31,
2018

 

Repayment

 

Foreign
exchange
movement

 

December 31,
2019

 

Total debt(1)

 

$

126,503

 

$

(124,994

)

$

(1,509

)

$

—

 

Total liabilities from financing activities

 

$

126,503

 

$

(124,994

)

$

(1,509

)

$

—

 

 

 

 

Cash flows

 

Non-cash

 

 

 

December 31,
2017

 

Proceeds

 

Repayment

 

Accretion

 

Foreign
exchange
movement

 

December 31,
2018

 

Total debt(1)

 

$

244,520

 

$

191,790

 

$

(321,295

)

$

1,943

 

$

9,545

 

$

126,503

 

Total liabilities from financing activities

 

$

244,520

 

$

191,790

 

$

(321,295

)

$

1,943

 

$

9,545

 

$

126,503

 

 

(1)    The gross amount excludes unamortized deferred transaction costs as disclosed in the table above.

 

20

 

LARGO RESOURCES LTD.

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

Senior secured notes

 

On May 22, 2018, the Company completed a private placement of US$150,000 ($191,790) aggregate principal amount of senior secured notes due in 2021 (the “Notes”). The Notes were callable in years 2 and 3 and had an interest rate of 9.25% per annum, paid on a semi-annual basis in arrears on December 1 and June 1 each year, beginning on December 1, 2018. The terms of the Notes allowed the Company to redeem all or part of the Notes at varying redemption prices and established certain restrictive covenants. In addition, the Notes required the Company to make an offer to purchase the maximum amount of the Notes that may be purchased with 75% of the excess cash flow for each six-month period ending June 30 and December 31.

 

Following the satisfaction of the escrow release conditions, the net proceeds from the offering of US$143,277 ($183,194), being the principal amount less a 2% original issue discount, fees and certain expenses of the offering were used, together with cash on hand at the time of repayment, to repay in full the Company’s BNDES Facility, 2016 Facility, 2017 Facility, Swap Facility and export credit facilities, plus accrued and unpaid interest and any fees and expenses in connection therewith. The total amount paid in settlement of these facilities, including principal, interest and fees, was $247,976.

 

The total deferred transaction costs incurred in relation to the issuance of the Notes was $10,476.

 

On September 20, 2018, the Company redeemed US$15,000 in aggregate principal amount, representing 10% of the US$150,000 aggregate principal amount of Notes currently outstanding. The redemption price was 105% per principal amount of the Notes redeemed, plus accrued and unpaid interest up to, but not including, September 20, 2018.

 

Under the terms of the Notes, the Company had until November 18, 2018 (180 days from the closing date of the offering) to provide and duly register in Brazil a pledge (the “Pledge”) over all the shares the Company holds in its operating subsidiary, Vanádio de Maracás S.A. (“Vanádio”). This Pledge was registered on October 26, 2018 and the Company provided the required evidence of same to the trustee under the indenture governing the Notes on November 8, 2018.

 

On December 10 and 12, 2018, the Company purchased and cancelled US$16,173 and US$26,015 in aggregate principal amounts of Notes outstanding. The redemption prices were 104.750% and 105.125% per principal amount of the Notes redeemed, respectively, plus accrued and unpaid interest up to these dates.

 

On January 28, 2019 and February 19, 2019, the Company completed the purchase and cancellation of US$59,221 and US$4,490 in aggregate principal amounts of Notes outstanding. The Notes were purchased at a price equal to 105.625% per principal amount of the Notes redeemed plus accrued and unpaid interest up to January 28, 2019 and February 15, 2019, respectively.

 

On May 3, 2019, the Company made an excess cash flow offer to purchase all of its outstanding Notes at that time of US$29,101 at a purchase price of 103% of the principal amount thereof plus accrued and unpaid interest to, but not including, the purchase date. The offer was required to be made in accordance with the terms of the Notes and following this offer, US$6,736 of the Notes were repurchased and cancelled.

 

On June 10, 2019, the Company announced that it had elected to redeem the remaining outstanding Notes. The Notes were redeemed on July 8, 2019 at a price equal to 104.625% of the principal amount of the Notes plus accrued and unpaid interest to, but not including, the redemption date. The total amount paid was US$23,606 ($30,905), including the principal amount of Notes outstanding of US$22,365 ($29,280).

 

Following this redemption on July 8, 2019, the balance of the Notes outstanding was $nil.

 

At December 31, 2019, the balance of the Notes was US$nil ($nil) (December 31, 2018 — US$92,812 ($126,503)).

 

21

 

LARGO RESOURCES LTD.

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

12)          Provisions

 

a)             Provision for litigation claims

 

By their nature, contingencies will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events. The assessment of contingencies inherently involves the exercise of significant judgments and estimates of the outcome of future events.

 

The Company, through its subsidiaries, is party to legal proceedings in the ordinary course of its operations. The Company’s management, outside legal advisors, and other subject matter experts assess the potential outcome of these proceedings. Accordingly, the Company establishes provisions for future disbursements considered probable.

 

At December 31, 2019, based on developments in the respective hearings, the Company recognized a provision of $1,550 (December 31, 2018 — $1,413) primarily due to legal proceedings regarding labour matters. The outcome of each case remains dependent on the final judgment, which the Company does not expect to be delivered within the next 12 months. Refer to note 19.

 

b)             Provision for environmental compensation

 

In accordance with the terms of the Company’s environmental license for its Maracás Menchen Mine, the Company recognized a provision for future social and environmental compensation. Following the direction of the Secretary of the Environment for the state of Bahia, Brazil, the Company will be required to fund social or environmental projects.

 

At December 31, 2019, the Company recognized a provision of $619, with the full $619 expected to be incurred within the next 12 months (December 31, 2018 — $683 and $418, respectively).

 

c)              Provision for closure and reclamation

 

The Company makes a provision for the future cost of rehabilitating mine sites and related production facilities on a discounted basis on the development of mines or installation of those facilities. The rehabilitation provision represents the present value of estimated future rehabilitation costs relating to mine sites. These provisions have been created based on the Company’s internal estimates. Assumptions, including an inflation rate of 3.50% (December 31, 2018 — 3.75%) and a nominal discount rate of 6.50% (December 31, 2018 — 6.50%), have been made which management believes are a reasonable basis upon which to estimate the future liability.

 

The following table presents the reconciliation of the beginning and ending aggregate carrying amount of the provision for closure and reclamation associated with the retirement of the Company’s projects:

 

 

 

Maracás
Menchen
Mine

 

Currais
Novos
Tungsten

 

Total

 

Balance at December 31, 2017

 

$

5,073

 

$

824

 

$

5,897

 

Effect of changes in estimated cash flows and discount rates

 

1,498

 

(21

)

1,477

 

Accretion

 

185

 

26

 

211

 

Effect of foreign exchange

 

(338

)

(60

)

(398

)

Balance at December 31, 2018

 

$

6,418

 

$

769

 

$

7,187

 

Effect of changes in estimated cash flows and discount rates

 

1,277

 

26

 

1,303

 

Accretion

 

154

 

17

 

171

 

Effect of foreign exchange

 

(576

)

(63

)

(639

)

Balance at December 31, 2019

 

$

7,273

 

$

749

 

$

8,022

 

 

22

 

LARGO RESOURCES LTD.

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

The provision for closure and reclamation of the Maracás Menchen Mine at December 31, 2019 is based on a total anticipated liability of R$43,863 ($14,190) (December 31, 2018 — R$34,584 ($12,156)) and is expected to be incurred between 2042 and 2046 (December 31, 2018 — between 2042 and 2046).

 

The provision for closure and reclamation of the Currais Novos Tungsten project at December 31, 2019 is based on an anticipated liability of approximately R$2,657 ($860) (December 31, 2018 — R$2,547 ($895)), with reclamation  expected to be incurred between 2023 and 2027 (December 31, 2018 — between 2023 and 2027).

 

13)          Issued capital

 

a)             Authorized

 

Unlimited common shares without par value.

 

b)             Issued

 

 

 

Year ended
December 31, 2019

 

Year ended
December 31, 2018

 

 

 

Number of
Shares

 

Stated
Value

 

Number of
Shares

 

Stated
Value

 

Balance, beginning of the year

 

529,126

 

$

415,259

 

516,877

 

$

400,677

 

Exercise of warrants (note 14)

 

21,176

 

17,798

 

7,660

 

9,837

 

Exercise of share options (note 14)

 

3,248

 

2,730

 

4,194

 

3,796

 

Exercise of restricted share units (note 14)

 

984

 

2,150

 

395

 

949

 

Balance, end of the year

 

554,534

 

$

437,937

 

529,126

 

$

415,259

 

 

The Company applies the fair value method of accounting for share-based payment awards. The Company estimated the expected volatility using historical volatilities from the Company’s traded common shares when estimating the fair value of stock options granted, as it believes that this methodology best reflects the expected future volatility of its stock.

 

14)          Equity reserves

 

Under the Company’s incentive share compensation plan, the Company has issued options and restricted share units (“RSUs”) approximating 0.77% of its issued and outstanding capital at December 31, 2019.

 

During the year ended December 31, 2019, the Company recognized a share-based payment expense related to the grant and vesting of share options and RSUs of $4,730 (year ended December 31, 2018 — $2,064) for share options and RSUs granted to the Company’s directors, consultants, officers and employees. The total share-based payment expense was charged to operations.

 

During the year ended December 31, 2019, 21,176 warrants were exercised resulting in proceeds to the Company of $11,496, with 10,907 warrants surrendered as part of cashless exercises. 5,533 shares were issued subsequent to December 31, 2019 (refer to note 24) in connection with a cashless exercise in 2019. In addition, 3,248 stock options were exercised resulting in proceeds to the Company of $1,680.

 

During the year ended December 31, 2018, 7,660 warrants were exercised resulting in proceeds to the Company of $6,936, with 361 warrants surrendered as part of a cashless exercise. In addition, 4,194 stock options were exercised resulting in proceeds to the Company of $2,394.

 

23

 

LARGO RESOURCES LTD.

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

RSUs

 

Options

 

Warrants

 

 

 

 

 

Number

 

Value

 

Number

 

Weighted
average
exercise
price

 

Value

 

Number

 

Weighted
average
exercise
price

 

Value

 

Total
value

 

December 31, 2017

 

—

 

$

—

 

11,640

 

$

0.78

 

$

4,587

 

154,223

 

$

0.51

 

$

25,499

 

$

30,086

 

Share-based payments for options vested

 

—

 

—

 

—

 

—

 

9

 

—

 

—

 

—

 

9

 

Granted

 

1,232

 

1,427

 

365

 

2.40

 

628

 

—

 

—

 

—

 

2,055

 

Forfeited

 

(46

)

(53

)

—

 

—

 

—

 

—

 

—

 

—

 

(53

)

Exercised

 

(395

)

(949

)

(4,194

)

(0.57

)

(1,402

)

(8,021

)

(1.01

)

(2,901

)

(5,252

)

Expired

 

—

 

—

 

(853

)

(2.43

)

(992

)

—

 

—

 

—

 

(992

)

December 31, 2018

 

791

 

$

425

 

6,958

 

$

0.82

 

$

2,830

 

146,202

 

$

0.48

 

$

22,598

 

$

25,853

 

Share-based payments

 

—

 

1,393

 

—

 

—

 

—

 

—

 

—

 

—

 

1,393

 

Granted

 

1,017

 

2,490

 

370

 

3.04

 

847

 

—

 

—

 

—

 

3,337

 

Forfeited

 

(16

)

(14

)

—

 

—

 

—

 

—

 

—

 

—

 

(14

)

Exercised

 

(984

)

(2,150

)

(3,248

)

(0.52

)

(1,050

)

(37,616

)

(0.64

)

(6,302

)

(9,502

)

Expired

 

—

 

—

 

(933

)

(2.28

)

(1,527

)

(484

)

(0.65

)

(93

)

(1,620

)

December 31, 2019

 

808

 

$

2,144

 

3,147

 

$

0.96

 

$

1,100

 

108,102

 

$

0.42

 

$

16,203

 

$

19,447

 

 

a)             RSUs

 

During the year ended December 31, 2019, the Company granted 1,017 RSUs to officers and employees of the Company and 16 RSUs were forfeited. These RSUs vest over time, with one-third vesting on each of January 11, 2020, January 10, 2021 and January 10, 2022. The value of the vested RSUs includes the Company’s expected forfeiture rate of 0%. Upon vesting, the RSUs provide the holders with common shares of the Company.

 

During the year ended December 31, 2019, 783 RSUs previously granted to Mr. Mark Smith vested immediately upon his departure as Chief Executive Officer and a Director of the Company.

 

During the year ended December 31, 2018, the Company granted 1,232 RSUs to officers and employees of the Company and 46 RSUs were forfeited. These RSUs vest over time, with one-third vesting on each of December 5, 2018, December 5, 2019 and December 5, 2020. The value of the vested RSUs includes the Company’s expected forfeiture rate of 0%. Upon vesting, the RSUs provide the holders with common shares of the Company.

 

b)             Stock options

 

Range of prices

 

No. outstanding

 

No. exercisable

 

Weighted
average
remaining
life (years)

 

Weighted
average
exercise
price

 

Weighted
average
grant date
share price

 

$0.46 – 1.00

 

2,542

 

2,542

 

1.3

 

$

0.53

 

$

0.53

 

2.01 – 2.50

 

285

 

285

 

3.6

 

2.40

 

2.40

 

3.01 – 3.04

 

320

 

320

 

4.0

 

3.04

 

3.04

 

 

 

3,147

 

3,147

 

 

 

 

 

 

 

 

During the year ended December 31, 2019, the Company granted 370 (year ended December 31, 2018 — 365) stock options to its directors and consultants with a weighted average exercise price of $3.04. The stock options vested immediately and are exercisable for a period of 5 years from the date of grant. The estimated weighted average grant date fair value of the stock options was $2.29 per stock option, as determined using

 

24

 

LARGO RESOURCES LTD.

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

the Black-Scholes valuation model and the following assumptions: risk free interest rate — 1.89%, expected life in years — 5, expected volatility — 94.2%, expected dividends — 0% and expected forfeiture rate — 0%.

 

The remaining weighted average contractual life of options outstanding at December 31, 2019 was 1.9 years (December 31, 2018 — 2.3 years).

 

c)              Warrants and broker warrants

 

No.
outstanding

 

No.
exercisable

 

Grant
Date

 

Expiry
Date

 

Exercise
price

 

Estimated
fair value
at grant
date

 

Expected
volatility

 

Expected
life
(years)

 

Expected
dividend
yield

 

Risk-
free
Interest
rate

 

25,502

 

25,502

 

29-Jan-16

 

28-Jan-21

 

$

0.29

 

$

2,511

 

129

%

5.00

 

0

%

0.67

%

63,078

 

63,078

 

2-Mar-16

 

2-Mar-21

 

$

0.29

 

$

6,575

 

132

%

5.00

 

0

%

0.68

%

2,022

 

2,022

 

6-Jan-17

 

6-Jan-20

 

$

0.65

 

$

333

 

102

%

3.00

 

0

%

0.84

%

2,086

 

2,086

 

23-Jan-17

 

23-Jan-20

 

$

0.65

 

$

338

 

102

%

3.00

 

0

%

0.81

%

400

 

400

 

11-Apr-17

 

31-Dec-20

 

$

0.50

 

$

128

 

94

%

3.75

 

0

%

0.96

%

3,538

 

3,538

 

1-Dec-17

 

1-Dec-22

 

$

1.15

 

$

1,521

 

93

%

5.00

 

0

%

1.63

%

11,476

 

11,476

 

13-Dec-17

 

13-Dec-22

 

$

1.15

 

$

4,797

 

93

%

5.00

 

0

%

1.65

%

108,102

 

108,102

 

 

 

 

 

$

0.42

 

$

16,203

 

 

 

 

 

 

 

 

 

 

15)          Earnings (loss) per share

 

The total number of shares issuable from options, warrants and RSUs that are excluded from the computation of diluted earnings (loss) per share because their effect would be anti-dilutive was 112,057 for the year ended December 31, 2019 (year ended December 31, 2018 — 968).

 

16)          Taxes

 

a)             Tax (expense) recovery

 

 

 

Year ended

 

 

 

December 31,
2019

 

December 31,
2018

 

Income tax expense

 

$

(1,144

)

$

(27,467

)

Deferred income tax (expense) recovery

 

(3,809

)

20,769

 

Total

 

$

(4,953

)

$

(6,698

)

 

The major items causing the Company’s income tax expense to differ from the Canadian combined federal and provincial statutory rate of 26.50% (2018 — 26.50%) were:

 

 

 

Year ended

 

 

 

December 31,
2019

 

December 31,
2018

 

Net income (loss) before tax

 

$

(31,259

)

$

322,654

 

Expected income tax (expense) recovery based on statutory rate

 

8,284

 

(85,503

)

Adjustments to expected income tax (expense) recovery:

 

 

 

 

 

Permanent differences and other

 

(4,089

)

(3,632

)

Tax effect of unrecognized temporary differences and tax losses

 

(9,505

)

16,068

 

Tax incentives and tax loss benefit not previously recognized

 

598

 

90,289

 

Effect of tax rates in foreign jurisdictions

 

(1,085

)

(25,740

)

Foreign exchange

 

844

 

1,820

 

Income tax expense

 

$

(4,953

)

$

(6,698

)

 

25

 

LARGO RESOURCES LTD.

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

b)             Changes in deferred tax assets and liabilities

 

 

 

Year ended

 

 

 

December 31,
 2019

 

December 31,
2018

 

Net deferred income tax asset, beginning of the year

 

$

18,881

 

$

—

 

Deferred income tax (expense) recovery

 

(3,809

)

20,769

 

Effect of foreign exchange

 

(1,289

)

(1,888

)

Net deferred income tax asset, end of the year

 

$

13,783

 

$

18,881

 

 

c)              Deferred income tax balances

 

 

 

December 31,
2019

 

December 31,
2018

 

Brazil

 

 

 

 

 

Recognized deferred tax assets:

 

 

 

 

 

Non-capital losses

 

$

28,614

 

$

31,621

 

Mine properties, plant and equipment

 

1,080

 

1,218

 

 

 

 

 

 

 

Recognized deferred tax liabilities:

 

 

 

 

 

Transitional tax regime

 

$

(12,023

)

$

(12,311

)

Provisions

 

(3,888

)

(1,647

)

Net deferred income tax asset

 

$

13,783

 

$

18,881

 

 

Deferred tax assets have not been recognized in respect of the following deductible temporary differences:

 

 

 

December 31,
2019

 

December 31,
2018

 

Canada

 

 

 

 

 

Non-capital loss carry-forwards

 

$

88,728

 

$

63,477

 

Mine properties, plant and equipment

 

23,595

 

23,567

 

Share issue costs

 

6,652

 

216

 

Ireland

 

 

 

 

 

Non-capital loss carry-forwards

 

$

2,473

 

$

—

 

Mine properties, plant and equipment

 

118

 

—

 

 

The Company has approximately $23,329 (December 31, 2018 — $23,329) of Canadian development expenditures and $1,080 (December 31, 2018 — $1,218) of development costs in Brazil at December 31, 2019, which under certain circumstances can be used to reduce the taxable income of future years.

 

The non-capital losses in Brazil and Ireland carry forward indefinitely. The non-capital losses in Canada expire as follows:

 

Expiry date

 

Amount

 

Expiry date

 

Amount

 

Expiry date

 

Amount

 

2026

 

$

251

 

2032

 

$

6,201

 

2037

 

$

4,879

 

2028

 

733

 

2033

 

5,138

 

2038

 

14,346

 

2029

 

692

 

2034

 

21,160

 

2039

 

24,060

 

2030

 

2,098

 

2035

 

181

 

 

 

 

 

2031

 

5,497

 

2036

 

3,492

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

88,728

 

 

Deferred tax assets have only been recognized to the extent of the value of the deferred tax liabilities because it is not probable that the remaining temporary difference will reverse in the foreseeable future and that taxable profit will be available against which the tax benefits can be utilized.

 

26

 

LARGO RESOURCES LTD.

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

17)          Related party transactions

 

In accordance with IAS 24, key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company directly or indirectly, including any directors (executive and non-executive) of the Company. One of the directors, Ms. Koko Yamamoto, is a partner in an accounting firm that previously provided services to the Company. During the year ended December 31, 2019, an amount in accounting fees of $3 (year ended December 31, 2018 —$27) was billed and paid under normal payment terms.

 

During the year ended December 31, 2019, 783 RSUs previously granted to Mr. Mark Smith vested immediately upon his departure as Chief Executive Officer and a Director of the Company.

 

During the year ended December 31, 2019, funds managed by Arias Resource Capital Management LP (the “ARC Funds”) exercised 7,046 warrants, with a further 10,250 warrants surrendered as part of a cashless exercise. 5,533 shares were issued subsequent to December 31, 2019 in connection with the warrants exercised (refer to note 24).

 

The remuneration of directors and other members of key management personnel during the period was as follows:

 

 

 

Year ended

 

 

 

December 31,
2019

 

December 31,
2018

 

Short-term benefits

 

$

5,980

 

$

3,960

 

Share-based payments

 

3,684

 

1,720

 

Total

 

$

9,664

 

$

5,680

 

 

Refer to note 19 for additional commitments with management.

 

18)          Segmented disclosure

 

The Company has two operating segments: mine properties and exploration and evaluation properties. Corporate, which is not an operating segment includes the corporate team that provides administrative, technical, financial and other support to all of the Company’s business units.

 

 

 

Exploration &
evaluation
properties

 

Mine
properties

 

Corporate

 

Total

 

Year ended December 31, 2019

 

 

 

 

 

 

 

 

 

Revenues

 

$

—

 

$

140,012

 

$

—

 

$

140,012

 

Other gains (losses)

 

—

 

—

 

(1,795

)

(1,795

)

 

 

140,012

 

(1,795

)

138,217

 

 

 

Operating costs

 

—

 

(123,841

)

—

 

(123,841

)

Professional, consulting and management fees

 

—

 

(6,013

)

(7,237

)

(13,250

)

Foreign exchange loss

 

—

 

(2,088

)

(6,262

)

(8,350

)

Other general and administrative expenses

 

—

 

(1,145

)

(2,756

)

(3,901

)

Share-based payments

 

—

 

—

 

(4,716

)

(4,716

)

Finance costs

 

—

 

(281

)

(18,009

)

(18,290

)

Interest income

 

—

 

4,385

 

2,171

 

6,556

 

Exploration and evaluation costs

 

(363

)

(3,321

)

—

 

(3,684

)

 

 

(363

)

(132,304

)

(36,809

)

(169,476

)

Net income (loss) before tax

 

$

(363

)

$

7,708

 

$

(38,604

)

$

(31,259

)

Income tax expense

 

—

 

(1,144

)

—

 

(1,144

)

Deferred income tax expense

 

—

 

(3,809

)

—

 

(3,809

)

Net income (loss)

 

$

(363

)

$

2,755

 

$

(38,604

)

$

(36,212

)

 

27

 

LARGO RESOURCES LTD.

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Exploration &
evaluation
properties

 

Mine
properties

 

Corporate

 

Total

 

At December 31, 2019

 

 

 

 

 

 

 

 

 

Total non-current assets

 

$

—

 

$

235,752

 

$

26,374

 

$

262,126

 

Total assets

 

$

75

 

$

312,142

 

$

153,901

 

$

466,118

 

Total liabilities

 

$

—

 

$

110,348

 

$

1,203

 

$

111,551

 

 

 

 

Exploration &
evaluation
properties

 

Mine
properties

 

Corporate

 

Total

 

Year ended December 31, 2018

 

 

 

 

 

 

 

 

 

Revenues

 

$

—

 

$

521,415

 

$

—

 

$

521,415

 

Operating costs

 

—

 

(135,746

)

—

 

(135,746

)

Professional, consulting and management fees

 

—

 

(9,680

)

(5,770

)

(15,450

)

Foreign exchange (loss) gain

 

—

 

(6,619

)

6,911

 

292

 

Other general and administrative expenses

 

—

 

(3,759

)

(2,112

)

(5,871

)

Share-based payments

 

—

 

—

 

(2,011

)

(2,011

)

Finance costs

 

—

 

(23,624

)

(16,062

)

(39,686

)

Interest income

 

—

 

—

 

898

 

898

 

Exploration and evaluation costs

 

(77

)

(1,110

)

—

 

(1,187

)

 

 

(77

)

(180,538

)

(18,146

)

(198,761

)

Net income (loss) before tax

 

$

(77

)

$

340,877

 

$

(18,146

)

$

322,654

 

Income tax expense

 

—

 

(27,467

)

—

 

(27,467

)

Deferred income tax recovery

 

—

 

20,769

 

—

 

20,769

 

Net income (loss)

 

$

(77

)

$

334,179

 

$

(18,146

)

$

315,956

 

At December 31, 2018

 

 

 

 

 

 

 

 

 

Total non-current assets

 

$

—

 

$

238,167

 

$

28,167

 

$

266,334

 

Total assets

 

$

43

 

$

508,564

 

$

44,218

 

$

552,825

 

Total liabilities

 

$

—

 

$

39,842

 

$

120,256

 

$

160,098

 

 

The Company recognized revenues of $140,012 in the year ended December 31, 2019 (year ended December 31, 2018 — $521,415). The revenues are solely related to the Company’s Mine Properties segment. All of the Company’s revenues are from transactions with the Company’s off-take partner, Glencore International AG.

 

19)          Commitments and contingencies

 

At December 31, 2019, the Company was party to certain management and consulting contracts. Minimum commitments under the agreements are approximately $3,130 and are all payable within one year. These contracts also require that additional payments of up to approximately $4,695 be made upon the occurrence of certain events such as change of control. As the triggering event has not occurred, the contingent payments have not been reflected in these consolidated financial statements.

 

In 2008, Largo agreed to sell 100% of its vanadium production to Glencore International AG under an off-take agreement which, following the election by the Company, will expire at the end of April 2020.

 

The Company’s mining and exploration activities are subject to various federal, provincial and international laws and regulations governing the protection of the environment. These laws and regulations are continually

 

28

 

LARGO RESOURCES LTD.

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

changing and generally becoming more restrictive. The Company has made payments to comply with such laws and regulations.

 

The Company indemnifies its directors and officers against any and all claims or losses reasonably incurred in the performance of their service to the Company to the extent permitted by law. The Company has acquired and maintains liability insurance for its directors and officers.

 

The Company is committed to a minimum amount of rental payments under three leases of office space which expire on December 31, 2023, April 30, 2022 and October 31, 2020, respectively. Minimum rental commitments remaining under the leases are approximately $858, including $257 due within one year. In addition, minimum rental commitments remaining under other short-term leases are approximately $110, all due within one year.

 

At the Company’s Maracás Menchen Mine, the Company has entered into purchase order contracts with remaining amounts due related to goods not received or services not rendered as of December 31, 2019 of $8,975.

 

The Company, through its subsidiaries, is party to legal proceedings in the ordinary course of its operations related to legally binding agreements with various third parties under supply contracts and consulting agreements. At December 31, 2019 two such proceedings were ongoing, each in Brazil. The first relates to a supply agreement for the Maracás Menchen Mine which was filed with the courts in October 2014. The amount claimed totals R$9,900 ($3,203), with a counterclaim filed by Vanádio for R$10,700 ($3,461). A provision of R$1,324 ($428) has been recognized at December 31, 2019 for the probable loss (December 31, 2018 — R$1,455 ($511)). The second proceeding relates to a consulting agreement dispute for which R$3,900 ($1,262) (December 31, 2018 — R$3,900 ($1,371)) has been claimed against two of the Company’s subsidiaries. No provision has been recognized for this proceeding. The Company and its subsidiaries are also party to legal proceedings regarding labour matters. A provision was recorded at December 31, 2018 for such proceedings in an amount of R$2,566 ($902). At December 31, 2019, the provision recognized was R$3,468 ($1,122). The outcome of these proceedings remains dependent on the final judgment, which the Company does not expect to be delivered within the next 12 months. Management does not expect the outcome of any of the remaining proceedings to have a materially adverse effect on the results of the Company’s financial position or results of operations. Should any losses result from the resolution of these claims and disputes, they will be charged to operations in the period that they are determined.

 

20)          Capital management

 

The Company is a production, development and exploration stage entity with one producing asset in Brazil. The Company manages its capital to ensure that it will be able to continue to meet its financial and operational strategies and obligations, while maximizing the return to shareholders.

 

In the management of capital, the Company includes the components of shareholders’ equity and has previously had long-term debt. The Company manages the capital structure and makes adjustments thereto in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust its capital structure, the Company may attempt to issue new shares, acquire or dispose of assets, attempt to obtain additional debt financing or repay debt facilities.

 

There were no changes in the Company’s capital management strategy during the year ended December 31, 2019 compared to the previous year. During the year ended December 31, 2019, the Company completed the repayment of its Notes (refer to note 11).

 

29

 

LARGO RESOURCES LTD.

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

21)          Financial instruments

 

Financial assets and financial liabilities at December 31, 2019 and December 31, 2018 were as follows:

 

 

 

December 31,
2019

 

December 31,
2018

 

Cash

 

$

166,077

 

$

206,188

 

Restricted cash

 

99

 

21

 

Amounts receivable

 

247

 

55,126

 

Accounts payable and accrued liabilities

 

101,360

 

33,461

 

Current portion of long-term debt

 

—

 

117,354

 

 

Refer to the liquidity risk discussion below regarding liabilities.

 

The Company’s risk exposures and the impact on the Company’s financial instruments are summarized below. There have been no changes in the risks, objectives, policies and procedures from the previous year.

 

a)             Fair value

 

IFRS requires that the Company disclose information about the fair value of its financial assets and liabilities. Fair value estimates are made based on relevant market information and information about the financial instrument.

 

These estimates are subjective in nature and involve uncertainties in significant matters of judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect these estimates.

 

The fair value hierarchy categorizes into three levels the inputs to valuation techniques used to measure fair value.  The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs).

 

·             Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.

 

·             Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly such as those derived from prices.

 

·             Level 3 inputs are unobservable inputs for the asset or liability.

 

At December 31, 2019 and December 31, 2018, trade receivables are classified as FVTPL and are measured at fair value. The valuation of trade receivables and vanadium products is classified within Level 2 of the fair value hierarchy as it is measured using observable vanadium market transaction data as reported by a recognized provider of global metal prices. The valuation of trade receivables at December 31, 2019 resulted in a liability position. Accordingly, this has been classified as trade payables (refer to note 10) at December 31, 2019.

 

The carrying amounts for cash, restricted cash, other amounts receivable and accounts payable and accrued liabilities (excluding trade payables) in the consolidated statements of financial position approximate fair values because of the limited term of these instruments.

 

There have been no changes in the classification of financial instruments in the fair value hierarchy since December 31, 2018. The Company does not have any financial instruments measured using Level 3 inputs. The Company does not offset financial assets with financial liabilities and there were no transfers between Level 1 and Level 2 input financial instruments.

 

The Company’s Notes (note 11) were recognized initially at fair value, net of financing costs incurred, and subsequently measured at amortized cost. Any difference between the amounts originally received and the redemption value of the debt was recognized in the consolidated statements of income (loss) and comprehensive income (loss) over the period to maturity using the effective interest method. There are no Notes

 

30

 

LARGO RESOURCES LTD.

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

outstanding at December 31, 2019. The Company estimated the fair value of its long-term Notes to be $132,828 at December 31, 2018.

 

b)             Credit risk

 

The Company’s credit risk is primarily attributable to cash, restricted cash and amounts receivable. The Company minimizes its credit risk with respect to cash and restricted cash by leaving its funds on deposit with the highest rated banks in Canada, Ireland and Brazil. Financial instruments included in amounts receivable consist primarily of a receivable from one unrelated company. Management believes that the credit risk related to this receivable is remote due the credit quality of the customer.

 

c)              Liquidity risk

 

The following table details the Company’s expected remaining contractual cash flow requirements at December 31, 2019 for its financial liabilities with agreed repayment periods.

 

 

 

Less than
6 months

 

6 months
to 1 year

 

1 to 3 years

 

Over 3 years

 

Accounts payable and accrued liabilities (note 10)

 

$

101,360

 

$

—

 

$

—

 

$

—

 

 

 

$

101,360

 

$

—

 

$

—

 

$

—

 

 

The Company’s principal sources of liquidity are its cash flow from operating activities and cash of $166,077 (December 31, 2018 — $206,188). In response to the vanadium price decreases throughout 2019, the Company has adopted certain measures to manage its liquidity risk including repaying its Notes during the year ended December 31, 2019. Despite these measures, and in conjunction with the current vanadium price environment, a risk exists that the Company will not have sufficient liquidity to meet its obligations as they come due. At December 31, 2019, the Company’s trade receivables was in a liability position of $87,782 and was classified as trade payables (refer to notes 10 and 21(a)) (December 31, 2018 — trade receivables of $55,011 (refer to note 5)).

 

d)             Market risk

 

Interest rate risk

 

The Company’s exposure to a rise in interest rates was limited to that portion of its total debt facility that was subject to floating interest rates. At December 31, 2019, the Company did not have any outstanding debt facilities.

 

Foreign currency risk

 

At December 31, 2019, the Company did not have any outstanding long-term debt facilities (December 31, 2018 — 100% denominated in U.S. dollars).

 

The impact of fluctuations in foreign currency on cash balances and vanadium products (note 7) relates primarily to fluctuations between the U.S. dollar, the Canadian dollar, the Brazilian real (functional currency of Vanádio) and the Euro (functional currency of Largo Commodities Trading Ltd.). At December 31, 2019 the Company had cash balances and vanadium products denominated in U.S. dollars.

 

A 5% change in the value of the U.S. dollar relative to the Canadian dollar, the Brazilian real and the Euro would affect the value of the U.S. dollar denominated cash balances at December 31, 2019 by approximately $5,188 and the value of U.S. dollar priced vanadium products by $211.

 

Price risk

 

The Company’s only financial instruments susceptible to price risk is its trade receivables /  payables, which can vary with the market price of vanadium for products sold that have not yet had the final selling price determined

 

31

 

LARGO RESOURCES LTD.

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

in accordance with the Company’s off-take agreement. A 10% decrease or increase in the price of vanadium could affect the value of trade payables at December 31, 2019 by $2,801.

 

22)          Revenues

 

 

 

Year ended

 

 

 

December 31,
2019

 

December 31,
2018

 

Vanadium sales from a contract with a customer

 

$

277,285

 

$

455,368

 

Re-measurement of trade receivables / payables

 

(137,273

)

66,047

 

Total

 

$

140,012

 

$

521,415

 

 

23)          Expenses

 

 

 

Year ended

 

 

 

December 31,
2019

 

December 31,
2018

 

Operating costs:

 

 

 

 

 

Direct mine and mill costs

 

$

84,252

 

$

82,037

 

Royalties

 

7,921

 

22,678

 

Depreciation and amortization

 

31,668

 

31,031

 

 

 

$

123,841

 

$

135,746

 

Other general and administrative expenses:

 

 

 

 

 

Shareholder and regulatory

 

$

1,042

 

$

806

 

Travel

 

1,009

 

828

 

Donations

 

271

 

3,353

 

Occupancy

 

312

 

188

 

Office and other

 

1,267

 

696

 

 

 

$

3,901

 

$

5,871

 

Finance costs:

 

 

 

 

 

Interest expense and guarantee fees

 

$

9,064

 

$

34,402

 

Accretion

 

9,226

 

5,284

 

 

 

$

18,290

 

$

39,686

 

Employee compensation amounts included in the consolidated statements of income (loss):

 

 

 

 

 

Compensation

 

$

7,163

 

$

6,288

 

Share-based payments

 

4,716

 

2,011

 

 

 

$

11,879

 

$

8,299

 

 

24)          Subsequent events

 

In January 2020, 2,707 warrants with an exercise price of $0.65 were exercised resulting in gross proceeds to the Company of $1,713, with 129 warrants surrendered as part of a cashless exercise. 5,533 shares were issued in connection with a cashless exercise of warrants in 2019 (refer to note 14).

 

In March 2020, the Company secured a US$13,000 credit facility in Brazil. All amounts drawn under the facility are due to be repaid as a lump sum at maturity in 359 days.

 

32

Exhibit 99.7

FORM 13-502F1

 

CLASS 1 AND CLASS 3B REPORTING ISSUERS — PARTICIPATION FEE

 

MANAGEMENT CERTIFICATION

 

I, Ernest Cleave                    , an officer of the reporting issuer noted below have examined this Form 13-502F1 (the Form) being submitted hereunder to the Ontario Securities Commission and certify that to my knowledge, having exercised reasonable diligence, the information provided in the Form is complete and accurate.

 

(s) “Ernest Cleave”

 

March 20, 2020

Name: Ernest Cleave

 

Date:

Title: Chief Financial Officer

 

 

 

Reporting Issuer Name:

Largo Resources Ltd.

 

 

 

 

End date of previous financial year:

December 31, 2019

 

 

 

 

Type of Reporting Issuer:

x Class 1 reporting issuer

o Class 3B reporting issuer

 

 

 

Highest Trading Marketplace:

TSX

 

 

(refer to the definition of “highest trading marketplace” under OSC Rule 13-502 Fees)

 

Market value of listed or quoted equity securities:

 

(in Canadian Dollars - refer to section 7.1 of OSC Rule 13-502 Fees)

 

Equity Symbol

 

LGO

 

 

 

1st Specified Trading Period (dd/mm/yy)

(refer to the definition of “specified trading period” under OSC Rule 13-502 Fees)

 

              01/01/19       to       31/03/19         

 

 

 

Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace

 

$           $2.12                                        (i)

 

 

 

Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period Market value of class or series

 

                  529,649,000                         (ii)

 

 

 

Market value of class or series

(i) x (ii)

$             1,222,855,880                       (A)

 

 

 

2nd Specified Trading Period (dd/mm/yy)

(refer to the definition of “specified trading period” under OSC Rule 13-502 Fees)

 

              01/04/19     to        30/06/19       

 

 

 

Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace

 

$           $1.81                                        (iii)

 

 

Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period

 

$             531,631,000                         

 

 

 

Market value of class or series

(iii) x (iv)

$             962,252,110                          (B)

 

 

 

3rd Specified Trading Period (dd/mm/yy)

(refer to the definition of “specified trading period” under OSC Rule 13-502 Fees)

 

              01/07/19      to       30/09/19       

 

 

 

Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace

 

$           $1.47                                        (v)

 

 

 

Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period Market value of class or series

 

              537,108,000                             (vi)

 

 

 

Market value of class or series

(v) x (vi)

$           789,548,000                            (C)

 

 

 

4th Specified Trading Period (dd/mm/yy)

(refer to the definition of “specified trading period” under OSC Rule 13-502 Fees)

 

              01/10/19     to        31/12/19              

 

 

 

Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace

 

$           $.99                                           (vii)

 

 

 

Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period

 

              537,108,000                             (viii)

 

 

 

Market value of class or series

(vii) x (viii)

$           531,736,920                            (D)

 

 

 

5th Specified Trading Period (dd/mm/yy)

(if applicable - refer to the definition of “specified trading period” under OSC Rule 13-502 Fees)

 

              N/A                to       N/A                

 

 

 

Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace

 

$               N/A                                         (ix)

 

 

 

Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period

 

                  N/A                                         (x)

 

 

 

Market value of class or series

(ix) x (x)

$             N/A                                          (E)

 

 

Average Market Value of Class or Series

(Calculate the simple average of the market value of the class or series of security for each applicable specified trading period (i.e. A through E above))

 

$               851,598,417.50                   (1)

 

(Repeat the above calculation for each other class or series of equity securities of the reporting issuer (and a subsidiary pursuant to paragraph 2.8(1)(c) of OSC Rule 13-502 Fees, if applicable) that was listed or quoted on a marketplace at the end of the previous financial year)

 

Fair value of outstanding debt securities:

(See paragraph 2.8(1)(b), and if applicable, paragraph 2.8(1)(c) of OSC Rule 13-502 Fees)

 

$               N/A                                         (2)

 

(Provide details of how value was determined)

 

 

Capitalization for the previous financial year

(1) + (2)

$               40,950.00          

Participation Fee

(For Class 1 reporting issuers, from Appendix A of OSC Rule 13-502 Fees, select the participation fee)

 

(For  Class  3B  reporting  issuers,  from  Appendix A.1 of OSC Rule 13-502 Fees, select the participation fee)

 

 

 

 

 

Late Fee, if applicable

(As determined under section 2.7 of OSC Rule 13-502 Fees)

 

$               N/A            

 

 

 

Total Fee Payable

(Participation Fee plus Late Fee)

 

$               40,950.00        

 

Exhibit 99.8

FORM 13-501F1

 

CLASS 1 REPORTI NG I SSUERS AND CLASS 3B REPORTI NG I SSUERS — PARTICIPATI ON FEE

 

MANAGEMENT CERTIFICATION

 

I, Ernest Cleave, an officer of the reporting issuer noted below have examined this Form 13-501F1 (the Form) being submitted hereunder to the Alberta Securities Commission and certify that to my knowledge, having exercised reasonable diligence, the information provided in the Form is complete and accurate.

 

(s) “Ernest Cleave”

 

March 20, 2020

Name: Ernest Cleave

 

Date:

Title: Chief Financial Officer

 

 

 

Reporting Issuer Name:

Largo Resources Ltd.

 

 

 

 

End date of previous financial year:

December 31, 2019

 

 

 

 

Type of Reporting Issuer:

x Class 1 reporting issuer

o Class 3B reporting issuer

 

 

 

Highest Trading Marketplace:

TSX

 

 

Market value of listed or quoted equity securities:

 

Equity Symbol

 

LGO

 

 

 

1st Specified Trading Period (dd/mm/yy)

(refer to the definition of “specified trading period” under OSC Rule 13-502 Fees)

 

              01/01/19      to       31/03/19           

 

 

 

Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace

 

$           $2.12                                        (i)

 

 

 

Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period

 

                  529,649,000                         (ii)

 

 

 

Market value of class or series

(i) x (ii) 

$             1,222,855,880                       (A)

 

 

 

2nd Specified Trading Period (dd/mm/yy)

 

              01/04/19      to       30/06/19           

 

 

 

Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace

 

$           $1.81                                        (iii)

 

 

Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period

 

                529,649,000                          (iv)

 

 

 

Market value of class or series

(iii) x (iv)

$             962,252,110                          (B)

 

 

 

3rd Specified Trading Period (dd/mm/yy)

 

 

              01/07/19      to       30/09/19              

 

 

 

Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace

 

$           $1.47                                        (v)

 

 

 

Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period Market value of class or series

 

                  537,108,000                         (vi)

 

 

 

Market value of class or series

(v) x (vi)

$             789,548,000                          (C)

 

 

 

4th Specified Trading Period (dd/mm/yy)

 

              01/10/19     to        31/12/19              

 

 

 

Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace

 

$           $.99                                           (vii)

 

 

 

Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period

 

                  537,108,000                         (viii)

 

 

 

Market value of class or series

(vii) x (viii)

$             531,736,920                          (D)

 

 

 

5th Specified Trading Period (dd/mm/yy)

 

              N/A                 to       N/A        

 

 

 

Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace

 

$               N/A                                         (ix)

 

 

 

Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period

 

                  N/A                                         (x)

 

 

 

Market value of class or series

(ix) x (x)

$             N/A                                          (E)

 

 

Average Market Value of Class or Series

(Calculate the simple average of the market value of the class or series of security for each applicable specified trading period (i.e. A through E above))

 

$               851,598,417.50                   (1)

 

(Repeat the above calculation for each other class or series of equity securities of the reporting issuer (and a subsidiary, if applicable) that was listed or quoted on a marketplace at the end of the previous financial year)

 

Fair value of outstanding debt securities:

 

(Provide details of how value was determined)

 

$               N/A                                         (2)

 

 

 

Capitalization for the previous financial year

(1) + (2)

$               851,598,417.05                  

 

 

 

Participation Fee

 

$               19,000.00                             

 

 

 

Late Fee, if applicable

 

$               N/A          

 

 

 

Total Fee Payable

(Participation Fee plus Late Fee)

 

$               19,000.00                             

 

Exhibit 99.9

 

FORM 52-109F1

 

CERTIFICATION OF ANNUAL FILINGS FULL CERTIFICATE

 

I, Paul Misk, Chief Executive Officer of LARGO RESOURCES LTD., certify the following:

 

1.                                      Review: I have reviewed the AIF, if any, annual financial statements and annual MD&A, including, for greater certainty, all documents and information that are incorporated by reference in the AIF (together, the “annual filings”) of LARGO RESOURCES LTD. (the “issuer”) for the financial year ended December 31, 2019.

 

2.                                      No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the annual filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, for the period covered by the annual filings.

 

3.                                      Fair presentation: Based on my knowledge, having exercised reasonable diligence, the annual financial statements together with the other financial information included in the annual filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the annual filings.

 

4.                                      Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

 

5.                                      Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.2, the issuer’s other certifying officer(s) and I have, as at the financial year end

 

(a)                                 designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

 

(i)                                     material information relating to the issuer is made known to us by others, particularly during the period in which the annual filings are being prepared; and

 

(ii)                                  information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

 

(b)                                 designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

 

5.1                               Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Internal Control — Integrated Framework (2013 COSO Framework) published by The Committee of Sponsoring Organizations of the Treadway Commission.

 

5.2                               N/A

 

 

5.3                               N/A

 

6.                                      Evaluation: The issuer’s other certifying officer(s) and I have

 

(a)                                 evaluated, or caused to be evaluated under our supervision, the effectiveness of the issuer’s DC&P at the financial year end and the issuer has disclosed in its annual MD&A our conclusions about the effectiveness of DC&P at the financial year end based on that evaluation; and

 

(b)                                 evaluated, or caused to be evaluated under our supervision, the effectiveness of the issuer’s ICFR at the financial year end and the issuer has disclosed in its annual MD&A

 

(i)                                     our conclusions about the effectiveness of ICFR at the financial year end based on that evaluation; and

 

(ii)                                  N/A

 

7.                                      Reporting changes in ICFR: The issuer has disclosed in its annual MD&A any change in the issuer’s ICFR that occurred during the period beginning on January 1, 2019 and ended on December 31, 2019 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

 

8.                                      Reporting to the issuer’s auditors and board of directors or audit committee: The issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of ICFR, to the issuer’s auditors, and the board of directors or the audit committee of the board of directors any fraud that involves management or other employees who have a significant role in the issuer’s ICFR.

 

Date: March 20, 2020

 

 

 

/s/ “Paulo Misk”

 

 

 

Paulo Misk

 

Chief Executive Officer

 

 

2

Exhibit 99.10

 

FORM 52-109F1

 

CERTIFICATION OF ANNUAL FILINGS FULL CERTIFICATE

 

I, Ernest Cleave, Chief Financial Officer of LARGO RESOURCES LTD., certify the following:

 

1.                                      Review: I have reviewed the AIF, if any, annual financial statements and annual MD&A, including, for greater certainty, all documents and information that are incorporated by reference in the AIF (together, the “annual filings”) of LARGO RESOURCES LTD. (the “issuer”) for the financial year ended December 31, 2019.

 

2.                                      No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the annual filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, for the period covered by the annual filings.

 

3.                                      Fair presentation: Based on my knowledge, having exercised reasonable diligence, the annual financial statements together with the other financial information included in the annual filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the annual filings.

 

4.                                      Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

 

5.                                      Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the financial year end

 

(a)                                 designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

 

(i)                                     material information relating to the issuer is made known to us by others, particularly during the period in which the annual filings are being prepared; and

 

(ii)                                  information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

 

(b)                                 designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

 

5.1                               Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Internal Control — Integrated Framework (2013 COSO Framework) published by The Committee of Sponsoring Organizations of the Treadway Commission.

 

5.2                               N/A

 

 

5.3                               N/A

 

6.                                      Evaluation: The issuer’s other certifying officer(s) and I have

 

(a)                                 evaluated, or caused to be evaluated under our supervision, the effectiveness of the issuer’s DC&P at the financial year end and the issuer has disclosed in its annual MD&A our conclusions about the effectiveness of DC&P at the financial year end based on that evaluation; and

 

(b)                                 evaluated, or caused to be evaluated under our supervision, the effectiveness of the issuer’s ICFR at the financial year end and the issuer has disclosed in its annual MD&A

 

(i)                                     our conclusions about the effectiveness of ICFR at the financial year end based on that evaluation; and

 

(ii)                                  N/A

 

7.                                      Reporting changes in ICFR: The issuer has disclosed in its annual MD&A any change in the issuer’s ICFR that occurred during the period beginning on January 1, 2019 and ended on December 31, 2019 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

 

8.                                      Reporting to the issuer’s auditors and board of directors or audit committee: The issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of ICFR, to the issuer’s auditors, and the board of directors or the audit committee of the board of directors any fraud that involves management or other employees who have a significant role in the issuer’s ICFR.

 

Date: March 20, 2020

 

 

 

/s/ “Ernest Cleave”

 

 

 

Ernest Cleave

 

Chief Financial Officer

 

 

2

Exhibit 99.11

 

GRAPHIC

 

PRESS RELEASE

March 20, 2020

 

Largo Resources Reports Record Production and Lowest Annual Cash Costs at the Maracás Menchen Mine with 2019 Financial Results

 

All financial figures are in Canadian dollars unless otherwise stated.

 

Q4 2019 Highlights

 

·                  Production of 3,011 (6.6 million lbs(1)) tonnes of V2O5 in Q4 2019, a 16% increase over Q4 2018

 

·                  Record monthly V2O5 production of 1,162 tonnes in December 2019

 

·                  Cash operating costs excluding royalties(2) of US$2.48 ($3.28) per lb V2O5, a decrease of 29% over Q4 2018

 

·                  Revenues of $34.1 million in Q4 2019 (net of the re-measurement of trade receivables / payables of $13.5 million on vanadium sales from a contract with a customer of $47.6 million)

 

Full Year 2019 Highlights

 

·                   Record FY 2019 production, achieving midpoint production guidance: 10,577 tonnes (23.3 million lbs(1)) of V2O5 produced in 2019, an increase of 8% over FY 2018

 

·                  Cash operating costs excluding royalties(2) of US$2.95 ($3.92) per lb V2O5, 12% lower than 2019 cost guidance; 13% lower than 2018

 

·                  Revenues of $140.0 million in FY 2019 (net of the re-measurement of trade receivables / payables of $137.3 million on vanadium sales from a contract with a customer of $277.3 million)

 

·                  Net loss of $36.2 million and a loss per share of $0.07

 

·                  Cash balance of $166.1 million exiting 2019

 

·                  New safety record in 2019: 238 days (1.5 million man-hours worked) without a Lost Time Injury

 

Other Significant Updates

 

·                  Strategic sales and marketing transition proven successful: 90% committed on guided annual sales for 2020

 

·                  New 2020 total cash cost(8) guidance of US$3.45 — 3.65/lb V2O5

 

·                  2020 total cash cost(8), cash operating costs excluding royalties(2), sales and production guidance maintained on a “business as usual” basis

 

·                  Board approval for the construction of a vanadium trioxide (“V2O3”) processing plant in Maracás, Brazil

 

 

·                  Ilmenite flotation pilot plant proven successful; TiO2 chemical pilot plant tests and study expected to commence in April 2020

 

TORONTO - Largo Resources Ltd. (“Largo” or the “Company”) (TSX: LGO) (OTCQX: LGORF) announces its 2019 financial results highlighted by record annual production of 10,577 tonnes of vanadium pentoxide (“V2O5”) and the lowest annual cash operating costs excluding royalties(2) achieved to date of US$2.95 per pound of V2O5. The Company recorded a net loss of $36.2 million in 2019 largely due to lower vanadium prices and the re-measurement of trade receivables / payables as part of its offtake agreement which expires on April 30, 2020.

 

Paulo Misk, President and Chief Executive Officer for Largo, stated: “Profitability was impacted in Q4 2019 and in 2019 as a consequence of lower vanadium prices and largely due to a total re-measurement of trade receivables / payables during the year of $137.3 million as part of the Company’s off-take agreement. Following the expiration of the off-take agreement next month, the Company remains focused on maximizing value through its sales and marketing business, which includes a focus on high purity vanadium sales with price premiums. I am very pleased to report that the Company is approximately 90% committed on its annual guided sales for 2020.”

 

He continued: “On the operational front, the Company performed extremely well in 2019 achieving cash operating costs excluding royalties(2) of US$2.95 per pound of V2O5 in addition to setting a new V2O5 production record of 10,577 tonnes. I am very proud of the entire Largo team who have consistently demonstrated their ability to achieve new production records while maintaining cost discipline. In addition to the ferrovanadium conversion plant approval, the Board of Directors has also approved the construction of a V2O3 processing plant at the Maracás Menchen Mine. Once completed, the Company expects to increase its premium yielding high purity sales in the vanadium-titanium-aluminum alloying market which is required for aerospace manufacturing, chemical industry and vanadium electrolyte used for vanadium redox flow batteries.”

 

He concluded: “The Company is continuing to monitor the rapidly developing impacts of the COVID-19 (“coronavirus”) pandemic and will take all possible actions to help minimize the impact on the Company and its people. Our thoughts are with all of those affected by this virus. To date, there has been no impact on our production or on our shipment of product out of Maracás. At this time, there has been no significant disruption to the Company’s supply chain for its operations and the level of critical consumables continues to be at normal levels. Additionally, not a single employee or contractor has tested positive for the virus and given its relative isolation, we believe that the risk to our operating team in Maracás remains relatively low. Largo continues to monitor and will, if and when required, implement business continuity measures to mitigate and minimize any potential impacts of the global pandemic on our operations, supply chain, and commercial and financial activities. The Company continues to follow best practices as provided by the World Health Organization and will provide additional updates as they are needed.”

 

A summary of the operational and financial performance for the fourth quarter Q4 and full year 2019 is provided below:

 

2

 

Financial

 

 

 

Three months ended

 

Year ended

 

 

 

December 31,
2019

 

December 31,
2018

 

December 31,
2019

 

December 31,
2018

 

Revenues

 

$

34,118

 

$

177,543

 

$

140,012

 

$

521,415

 

Direct mine and mill costs

 

(20,025

)

(21,332

)

(84,252

)

(82,037

)

Operating costs

 

(29,980

)

(37,637

)

(123,841

)

(135,746

)

Net income (loss) before tax

 

(2,544

)

131,091

 

(31,259

)

322,654

 

Income tax (expense) recovery

 

(1,190

)

(11,694

)

(1,144

)

(27,467

)

Deferred income tax (expense) recovery

 

(1,219

)

(11,436

)

(3,809

)

20,769

 

Net income (loss)

 

(4,953

)

107,961

 

(36,212

)

315,956

 

Basic earnings (loss) per share

 

(0.01

)

0.21

 

(0.07

)

0.61

 

Diluted earnings (loss) per share

 

(0.01

)

0.16

 

(0.07

)

0.49

 

 

 

 

 

 

 

 

 

 

 

Cash provided (used) before non-cash working capital items

 

$

16,507

 

$

134,357

 

$

28,630

 

$

403,157

 

Net cash provided by operating activities

 

10,445

 

144,165

 

139,282

 

352,074

 

Net cash (used in) financing activities

 

12,206

 

(64,811

)

(115,226

)

(177,786

)

Net cash (used in) investing activities

 

(7,472

)

(6,198

)

(50,386

)

(18,989

)

Net change in cash

 

11,262

 

78,127

 

(40,111

)

151,463

 

 

 

 

As at

 

 

 

December 31,
2019

 

December 31,
2018

 

Cash

 

$

166,077

 

206,188

 

Working capital(3)

 

102,013

 

135,258

 

Trade payables

 

87,782

 

—

 

 

Operational

 

 

 

2019

 

2018

 

 

 

Q4

 

Q3

 

Q2

 

Q1

 

Full Year

 

Q4

 

Full Year

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Ore Mined (tonnes)

 

329,792

 

267,257

 

308,858

 

250,109

 

1,156,016

 

256,436

 

822,795

 

Ore Grade Mined - Effective Grade (%)(6)

 

1.36

 

1.52

 

1.21

 

1.29

 

1.34

 

1.33

 

1.30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective Grade of Ore Milled (%)(6)

 

1.57

 

1.44

 

1.49

 

1.51

 

1.50

 

1.53

 

1.68

 

Concentrate Produced (tonnes)

 

100,879

 

92,629

 

102,320

 

86,673

 

382,501

 

92,190

 

343,126

 

Grade of Concentrate (%)

 

3.28

 

3.26

 

3.30

 

3.32

 

3.29

 

3.27

 

3.41

 

Contained V2O5 (tonnes)

 

3,310

 

3,016

 

3,380

 

2,874

 

12,580

 

3,016

 

11,718

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crushing Recovery (%)

 

96.6

 

96.5

 

98.0

 

97.0

 

97.0

 

97.4

 

97.2

 

Milling Recovery (%)

 

96.0

 

97.0

 

97.9

 

96.8

 

96.9

 

97.9

 

96.9

 

Kiln Recovery (%)

 

89.7

 

88.8

 

88.8

 

89.2

 

89.1

 

84.3

 

86.6

 

Leaching Recovery (%)

 

96.7

 

97.2

 

95.7

 

97.7

 

96.8

 

96.5

 

97.2

 

Chemical Plant Recovery (%)

 

96.1

 

96.7

 

97.1

 

97.7

 

96.8

 

97.2

 

97.0

 

Global Recovery (%)(7)

 

77.3

 

78.1

 

79.1

 

80.0

 

78.5

 

75.3

 

77.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

V2O5 produced (tonnes)

 

3,011

 

2,952

 

2,515

 

2,099

 

10,577

 

2,595

 

9,830

 

V2O5 produced (equivalent pounds(1))

 

6,638,111

 

6,508,038

 

5,544,619

 

4,627,497

 

23,318,266

 

5,720,989

 

21,671,415

 

 

Fourth Quarter and Full Year 2019 Financial Results

 

The Company recorded a net loss of $36.2 million in 2019 compared to net income of $316.0 million in 2018. This movement was primarily due to a decrease in revenues during the year and was partially offset by a decrease in operating costs of $11.9 million, a decrease in finance costs of $21.4 million and an increase in interest income of

 

3

 

$5.7 million. In Q4 2019, the Company recorded a net loss of $5.0 million compared to net income of $108.0 million in Q4 2018.

 

The Company’s total sales of V2O5 in 2019 were 10,160 tonnes which includes 1,640 tonnes of high purity V2O5. Total high purity sales in 2019 increased 14% over the 1,440 tonnes sold in 2018. Total sales of V2O5 in Q4 2019 were 2,860 tonnes which includes 480 tonnes of high purity V2O5.

 

Following the $137.3 million reduction in revenues as a result of the re-measurement of trade receivables / payables under the Glencore contract, the Company recognized revenues of $140.0 million in 2019 compared with revenues of $521.4 million in 2018. Revenues per pound sold(4) in 2019 were $6.25 (US$4.70) compared with $24.33 (US$18.68) per pound in 2018. For Q4 2019, the Company recognized revenues of $34.1 million compared with revenues of $177.5 million in Q4 2018. Revenues per pound sold(4) in Q4 2019 were $5.41 (US$4.09) compared with $31.96 (US$24.19) per pound in Q4 2018.

 

Vanadium sales from a contract with a customer was $277.3 million in 2019, compared with $455.4 million in 2018. Vanadium sales per pound sold(4) in 2019 was $12.38 (US$9.32) compared to $21.25 (US$16.32) per pound in 2018. This decrease is primarily attributable to a decrease in the V2O5 price, with the average price per lb of V2O5 of approximately US$9.36 for 2019, compared with approximately US$18.30 for 2018. Vanadium sales from a contract with a customer was $47.6 million in Q4 2019, compared with $167.6 million in Q4 2018. Vanadium sales per pound sold(4) in Q4 2019 was $7.54 (US$5.70) compared to $30.17 (US$22.84) per pound in Q4 2018. This decrease is primarily attributable to a decrease in the V2O5 price, with the average price per lb of V2O5 of approximately US$5.37 for Q4 2019, compared with approximately US$24.53 for 2018.

 

 

 

Three months ended

 

Year ended

 

 

 

December
31, 2019

 

December
31, 2018

 

December
31, 2019

 

December
31, 2018

 

Vanadium sales from a contract with a customer

 

$

47,568

 

167,639

 

277,285

 

455,368

 

Vanadium sales per pound sold(4) ($/lb)

 

$

7.54

 

30.17

 

12.38

 

21.25

 

Vanadium sales per pound sold(4) (US$/lb)

 

$

5.70

 

22.84

 

9.32

 

16.32

 

 

 

 

 

 

 

 

 

 

 

 

Re-measurement of trade receivables / payables

 

$

(13,450

)

9,904

 

(137,273

)

66,047

 

Revenue adjustment per pound(5) ($/lb)

 

$

(2.26

)

3.65

 

(6.05

)

3.53

 

Revenue adjustment per pound(5) (US$/lb)

 

$

(1.71

)

2.76

 

(4.55

)

2.71

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

34,118

 

177,543

 

140,012

 

521,415

 

Revenues per pound sold(4) ($/lb)

 

$

5.41

 

31.96

 

6.25

 

24.33

 

Revenues per pound sold(4) ($US/lb)

 

$

4.09

 

24.19

 

4.70

 

18.68

 

 

As a consequence of the negative revenue adjustment per pound(5) realized in Q4 2019 and in 2019, the Company’s trade payables balance at December 31, 2019 was $87.8 million and the revenue adjustment payable(5) was $95.7 million (US$73.6 million). Assuming V2O5 prices remain the same as at December 31, 2019, the Company’s estimated revenue adjustment payable(5) for V2O5 sold to December 31, 2019 is $96.2 million (US$74.0 million). At the date of this press release, the Company’s estimated revenue adjustment payable for V2O5 sold(5) to February 29, 2019 is approximately $94.4 million (US$72.6 million).

 

4

 

The Company has forecast its expected cash balance and the estimated revenue adjustment payable(5) at April 30, 2020 under three different vanadium price scenarios. Each scenario assumes that the vanadium price shown in the table below applies from January 1, 2020 to April 30, 2020 and constant foreign exchange rates and cash operating costs per pound produced(2) consistent with the guidance released. The forecast balances, which constitute forward-looking information, are shown in the table below.

 

The Company is continuing to monitor the rapidly developing impacts of the COVID-19 pandemic and will take all possible actions to help minimize the impact on the Company and its people. Given these uncertainties, the Company is actively working to secure credit facilities to provide it with additional cash resources should the impacts be significant. In March 2020, the Company secured a US$13.0 million credit facility in Brazil. All amounts drawn under the facility are due to be repaid as a lump sum at maturity in 359 days.

 

 

 

US$5.00/lb

 

US$6.00/lb

 

US$7.00/lb

 

Forecast cash at April 30, 2020

 

$

165,295

 

$

165,464

 

$

165,949

 

Estimated revenue adjustment payable(5) at April 30, 2020

 

93,281

 

84,474

 

75,826

 

Net

 

$

72,014

 

$

80,990

 

$

90,123

 

 

Operating costs in 2019 were $123.8 million compared to $135.7 million in 2018 and include direct mine and mill costs of $84.3 million ($82.0 million in 2018), depreciation and amortization of $31.7 million ($31.0 million in 2018) and royalties of $7.9 million ($22.7 million in 2018). For Q4 2019, operating costs were $30.0 million compared to $37.6 million in Q4 2018 and include direct mine and mill costs of $20.0 million ($21.3 million in Q4 2018), depreciation and amortization of $8.0 million ($7.3 million in Q4 2018) and royalties of $2.0 million ($9.0 million in Q4 2018). The decrease in direct mine and mill costs in Q4 2019 is primarily attributable to the recovery of operating cost related tax credits totaling R$12.3 million. Additionally, the decrease in royalties in 2019 from 2018 is due to a decrease in V2O5 price.

 

Cash operating costs excluding royalties(2) in 2019 were $3.92 (US$2.95) per pound compared to $4.41 (US$3.38) in 2018, representing a decrease of 13%. Cash operating costs excluding royalties(2) in Q4 2019 were $3.28 (US$2.48) per pound compared to $4.60 (US$3.48) in Q4 2018 which represents the lowest unit costs achieved since commencement of operations in 2014. The decrease seen in Q4 2019 compared with Q4 2018 is largely due to the Q4 2019 production of 3,011 tonnes of V2O5 being 416 tonnes higher than the 2,595 tonnes produced in Q4 2018, as well as an improvement in the global recovery level and the recovery of tax credits.

 

Interest income in 2019 was $6.6 million representing an increase of $5.7 million over 2018. For Q4 2019, interest income was $1.1 million compared to $0.6 million in Q4 2018. This is due to the Company’s increased cash position during Q4 2019 and in 2019 which has enabled it to benefit from greater deposit interest rates.

 

Fourth Quarter and Full Year 2019 Operational Results

 

Total V2O5 production of 3,011 tonnes during Q4 2019 was 16% higher than Q4 2018. Production in December 2019 achieved a new monthly record with 1,162 tonnes of V2O5 produced, which contributed to the total V2O5 production in 2019 of 10,577 tonnes being 747 tonnes higher than in 2018. In October, 946 tonnes of V2O5 was produced, with 903 tonnes produced in November. Q4 2019 production was 2% higher than in Q3 2019, primarily due to the

 

5

 

successful completion of the expansion in the milling and evaporation areas, which enabled the full plant to achieve its expanded design capacity.

 

In Q4 2019, 329,792 tonnes of ore were mined with an effective grade(6) of 1.36% of V2O5. The Company produced 100,879 tonnes of concentrate ore with an effective V2O5 grade of 3.28%, compared with 92,190 tonnes produced in Q4 2018 with a grade of 3.27%. The Company uses production drilling prior to blasting to better define the ore and waste material being mined. This dilution control procedure has enabled the Company to avoid mining waste rock inside the ore block, resulting in less ore being mined, but with a higher grade than expected. The effective grade milled reports higher than the effective grade mined as a result of dry magnetic separation which occurs between the two processes. The Company’s crushing and milling costs have benefited from the implementation of these procedures as a result of lower throughput of material in these sections of the plant.

 

The Q4 2019 global recovery(7) of 77.3% was impacted by the lower global recovery(7) achieved in October 2019 (72.9%) through the commissioning and ramp-up activities in the milling area. The 2019 global recovery(7) of 78.5% is higher than the 77.0% achieved in 2018, primarily due to the improved performance of the kiln, which increased its recovery from 86.6% in 2018 to 89.1% in 2019.

 

V2O3 Processing Plant Approval

 

In addition to the previously approved ferrovanadium conversion plant, the Company’s Board of Directors has also approved the construction of a V2O3 processing plant at the Maracás Menchen Mine, which is expected to increase sales in the high purity aerospace market, chemical industry and vanadium electrolyte used for vanadium redox flow batteries. The Company expects the construction of the V2O3 plant to begin in Q1 2021 and subsequent ramp up and commissioning of the plant to conclude in Q3 2021. Total capital expenditures are expected to be in the range of approximately US$10 to 11 million.

 

Ilmenite Flotation Pilot Plant Study Proven Successful — Next Step: TiO2 Chemical Pilot Plant Study

 

The Company continues to evaluate the economic feasibility of extracting ilmenite concentrate and titanium dioxide (TiO2) from its non-magnetic tailings at the Maracás Menchen Mine. To date, the Company has successfully proven its ability to produce ilmenite concentrate using an ilmenite flotation pilot plant. The Company is expected to commence the next phase of testing in April 2020 to further upgrade its ilmenite concentrate into TiO2 using an additional chemical pilot plant. The Company will continue to provide updates as these studies progress.

 

Q1 2020 Operational Update and Q2 2020 Financial Results Outlook

 

Subsequent to Q4 2019, production in January 2020 was 956 tonnes of V2O5, with 915 tonnes of V2O5 produced in February 2020. Production in January 2020 was impacted by shutdowns of the kiln and cooler to fix the refractory and maintenance to correct an instability in the kiln feed. February 2020 production was impacted by a kiln shutdown to fix a hot spot in the refractory. In April 2020 the Company is planning an upgrade to the kiln burner and improvements in the cooler with the aim of increasing kiln capacity by 10%. This will require the kiln and cooler to be shut down for approximately 15 days. During this period, the Company will replace approximately 15 to 20

 

6

 

metres of the cooler refractory. The Company estimates that production in April 2020 will be approximately 500 tonnes of V2O5.

 

In addition to the impact on production as a result of kiln upgrades and cooler maintenance in April 2020, the Company expects its Q2 2020 financial results to be impacted by lower sales realized in the quarter as a consequence of inventory working capital due to shipping and ferrovanadium conversion lead times. Assuming an increase or decrease in the V2O5 price of US$1.00/lb after April 1, 2020, the Company expects the revenue adjustment payable(8) to impact future periods (positively or negatively) by approximately US$7.4 million ($10,730 using a foreign exchange rate of 1.45).

 

2020 Guidance Update

 

The Company’s 2020 guidance presented in the following table is prepared on a “business as usual” basis.  Notwithstanding the Company’s production, cost and sales guidance for 2020, Largo is conscious of the rapid expansion of the COVID-19 pandemic and the evolving measures being imposed by governments globally to reduce its spread and the impact that this may have on our guidance. To date, the restrictions imposed by the government in Brazil have not impacted our operations but the potential future impact of these restrictions and other restrictions globally on our operations, sales efforts and logistics is unknown but could be significant. The Company will continue to monitor the situation and will, if and when necessary, update the market.

 

In addition, the Company has introduced a new non-GAAP cost measure it will use to measure its cost performance. This decision was taken in light of the anticipated difference between production and sales volumes in 2020. Following the end of the Company’s off-take agreement on April 30, 2020, the Company will incur its own sales and distribution costs, which will be included as a component of operating costs going forward. Costs associated with the off-take agreement were included in the commissions that were included in the measurement of revenues.

 

Total cash costs(8) include direct mine and mill costs, sales and distribution costs and the Company’s professional, consulting and management fees and other general and administrative expenses. Total cash costs(8) exclude royalties, depreciation and amortization, share-based payments, foreign exchange gains or losses, reclamation costs, exploration and evaluation costs and capital expenditures. These costs are then divided by the pounds of V2O5 sold by the Company to arrive at total cash costs(8). The Company has also adjusted its previously stated cash operating costs excluding royalties(2) guidance for 2020 as a result of movements in Brazilian foreign exchange rates.

 

The Company’s 2020 guidance highlighted below:

 

 

 

 

 

2020 Guidance

 

Annual V2O5 production

 

tonnes

 

11,750 – 12,250

 

Annual V2O5 sales

 

tonnes

 

9,500 – 10,000

 

 

 

 

 

 

 

Cash operating costs excluding royalties(i)

 

US$/lb

 

3.05 – 3.25

 

Total cash costs(8),(ii), (iii)

 

US$/lb

 

3.45 – 3.65

 

 

 

 

 

 

 

Sustaining capital expenditures (excluding capitalized stripping costs)

 

$

 

11,500 – 14,500

 

 

 

US$

 

9,000 – 11,000

 

Ferrovanadium conversion plant capital expenditures

 

$

 

6,500 – 9,500

 

 

 

US$

 

5,000 – 7,000

 

 

7

 

(i)            The cash operating costs reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this press release. However, for 2020 onwards, this measure will be reported on a per pounds sold basis rather than per pounds produced. The estimated average annual R$/US$ and $/US$ exchange rates used are approximately 4.50 and 1.30, respectively.

 

(ii)        The total cash costs reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this press release. The estimated average annual R$/US$ and $/US$ exchange rates used are approximately 4.00 and 1.30, respectively.

 

(iii)    These measures exclude royalties. Every US$1/lb in the V2O5 price realized by the Company in revenues adds approximately US$0.05/lb in royalties.

 

Conference Call

 

Largo Resources management will host a conference call on Monday, March 23, at 10:00 a.m. EST, to discuss the Company’s annual operational and financial results for 2019.

 

Conference Call Details:

 

Date:

 

Monday, March 23, 2020

Time:

 

10:00 a.m. EST

Dial-in Number:

 

Local / International: +1 (416) 764-8688

 

 

North American Toll Free: (888) 390-0546

 

 

Brazil Toll Free: 08007621359

 

 

43872339

Conference ID:

 

Monday, March 23, 2020

Replay Number:

 

Local / International: + 1 (416) 764-8677

 

 

North American Toll Free: (888) 390-0541

 

 

Replay Passcode: 872339#

Website:

 

To view press releases or any additional financial information, please visit our Investor Relations section of the Largo Resources website at:  www.largoresources.com/investors

 

A playback recording will be available on the Company’s website for a period of 60-days following the conference call.

 

The information provided within this release should be read in conjunction with Largo’s annual consolidated financial statements for the year ended December 31, 2019 and 2018 and its management’s discussion and analysis for the year ended December 31, 2019 which are available on our website at www.largoresources.com and on SEDAR.

 

About Largo Resources

 

Largo Resources is an industry preferred producer and supplier of vanadium. Largo’s VPURE™ and VPURE+™ products are sourced from one of the world’s highest-grade vanadium deposits at the Maracás Menchen Mine located in Brazil. The Company’s common shares are principally listed on the Toronto Stock Exchange under the symbol “LGO”. For more information on Largo and VPURE™, please visit www.largoresources.com and www.largoVPURE.com.

 

Neither the Toronto Stock Exchange (nor its regulatory service provider) accepts responsibility for the adequacy or accuracy of this release.

 

8

 

CONTACT INFORMATION:

 

For more information, please contact:

 

Alex Guthrie
Manager, Investor Relations and Communications
info@largoresources.com
416-861-9797

 

Forward Looking Information

 

This press release contains forward-looking information under Canadian securities legislation, some of which may be considered “financial outlook” for the purposes of application Canadian securities legislation (“forward-looking statements”). Forward-looking information in this press release includes, but is not limited to, statements with respect to timing for and completion of the Maracás Menchen Mine expansion project and the costs associated therewith; the timing and amount of estimated future production; costs of future activities and operations; and the extent of capital and operating. Forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. All information contained in this news release, other than statements of current and historical fact, is forward looking information. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Largo to be materially different from those expressed or implied by such forward-looking statements, including but not limited to those risks described in the annual information form of Largo and in its public documents filed on SEDAR from time to time. Forward-looking statements are based on the opinions and estimates of management as of the date such statements are made. Although management of Largo has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Largo does not undertake to update any forward-looking statements, except in accordance with applicable securities laws. Readers should also review the risks and uncertainties sections of Largo’s annual and interim MD&As which also apply.

 

Non-GAAP(9) Measures

 

The Company uses certain non-GAAP financial performance measures in its Management’s Discussion and Analysis for the year ended December 31, 2019, which are described in the following section.

 

Revenues Per Pound

 

The Company’s press release refers to revenues per pound sold, including vanadium sales per pound sold and revenue adjustment per pound sold.  These are non-GAAP performance measures and are used to provide investors with information about key measures used by management to monitor performance of the Maracás Menchen Mine.

 

9

 

These measures, along with cash operating costs per pound produced, are considered to be one of the key indicators of the Company’s ability to generate operating earnings and cash flow from its Maracás Menchen Mine. These revenues per pound measures do not have any standardized meaning prescribed by IFRS and differ from measures determined in accordance with IFRS. These measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These measures are not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.

 

The following tables provide a reconciliation of these measures per pound sold for the Maracás Menchen Mine to revenues as per the 2019 annual consolidated financial statements.

 

 

 

Three months ended

 

 

 

December 31,
2019

 

December 31,
2018

 

Revenues(i)

 

$

34,118

 

$

177,543

 

V2O5 sold (000s lb)

 

6,305

 

5,556

 

Revenues per pound sold ($/lb)

 

$

5.41

 

$

31.96

 

Revenues per pound sold (US$/lb)(iv)

 

$

4.09

 

$

24.19

 

 

 

 

 

 

 

Vanadium sales from a contract with a customer(ii)

 

$

47,568

 

$

167,639

 

V2O5 sold (000s lb)

 

6,305

 

5,556

 

Vanadium sales per pound sold ($/lb)

 

$

7.54

 

$

30.17

 

Vanadium sales per pound sold (US$/lb)(iv)

 

$

5.70

 

$

22.84

 

 

 

 

 

 

 

Re-measurement of trade receivables / payables(iii)

 

$

(13,450

)

$

9,904

 

V2O5 sold subject to re-measurement (000s lb)

 

5,952

 

2,712

 

Revenue adjustment per pound ($/lb)

 

$

(2.26

)

$

3.65

 

Revenue adjustment per pound (US$/lb)(iv)

 

$

(1.71

)

$

2.76

 

 

(i)            Calculated as the amount per note 22 of the Company’s annual consolidated financial statements for the years ended December 31, 2019 and 2018 less the amount disclosed for the nine-month period in note 20 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2019: $140,012 — $105,894 = $34,118.

Calculated as the amount per note 22 of the Company’s annual consolidated financial statements for the years ended December 31, 2019 and 2018 less the amount disclosed for the nine-month period in note 20 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2019: $521,415 — $343,872 = $177,543.

(ii)        Calculated as the amount per note 22 of the Company’s annual consolidated financial statements for the years ended December 31, 2019 and 2018 less the amount disclosed for the nine-month period in note 20 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2019: $277,285 — $229,717 = $47,568.

Calculated as the amount per note 22 less the amount disclosed for the nine-month period in note 20 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2019: $455,368 — $287,729 = $167,639.

(iii)    Calculated as the amount per note 22 of the Company’s annual consolidated financial statements for the years ended December 31, 2019 and 2018 less the amount disclosed for the nine-month period in note 20 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2019: $(137,273) — $(123,823) = $(13,450).

Calculated as the amount per note 22 less the amount disclosed for the nine-month period in note 20 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2019: $66,047 — $56,143 = $9,904.

(iv)      Calculated from “$/lb” using average $/US$ foreign exchange rates of 1.32 and 1.32 for Q4 2019 and Q4 2018, respectively.

 

10

 

 

 

Year ended

 

 

 

December 31,
2019

 

December 31,
2018

 

Revenues(i)

 

$

140,012

 

$

521,415

 

V2O5 sold (000s lb)

 

22,399

 

21,427

 

Revenues per pound sold ($/lb)

 

$

6.25

 

$

24.33

 

Revenues per pound sold (US$/lb)(ii)

 

$

4.70

 

$

18.68

 

 

 

 

 

 

 

Vanadium sales from a contract with a customer(i)

 

$

277,285

 

$

455,368

 

V2O5 sold (000s lb)

 

22,399

 

21,427

 

Vanadium sales per pound sold ($/lb)

 

$

12.38

 

$

21.25

 

Vanadium sales per pound sold (US$/lb)(ii)

 

$

9.32

 

$

16.32

 

 

 

 

 

 

 

Re-measurement of trade receivables / payables(i)

 

$

(137,273

)

$

66,047

 

V2O5 sold subject to re-measurement (000s lb)

 

22,686

 

18,717

 

Revenue adjustment per pound ($/lb)

 

$

(6.05

)

$

3.53

 

Revenue adjustment per pound (US$/lb)(ii)

 

$

(4.55

)

$

2.71

 

 

(i)            As per note 22 the Company’s annual consolidated financial statements for the years ended December 31, 2019 and 2018..

(ii)        Calculated from “$/lb” using average $/US$ foreign exchange rates of 1.33 and 1.30 for the years ended December 31, 2019 and 2018, respectively.

 

Cash Operating Costs Per Pound Produced

 

The Company’s press release refers to cash operating costs per pound produced, a non-GAAP performance measure, in order to provide investors with information about a key measure used by management to monitor performance. This information is used to assess how well the Maracás Menchen Mine is performing compared to plan and prior periods, and also to assess its overall effectiveness and efficiency.

 

Cash operating costs includes mine site operating costs such as mining costs, plant and maintenance costs, sustainability costs, mine and plant administration costs, royalties and sales, general and administrative costs (all for the mine properties segment), but excludes depreciation and amortization, share-based payments, foreign exchange gains or losses, commissions, reclamation, capital expenditures and exploration and evaluation costs.  These costs are then divided by the pounds of production from the Maracás Menchen Mine to arrive at the cash operating costs per pound produced. This measure differs to the new cash cost non-GAAP measure the Company will use to measure its performance starting in 2020 — refer to the details on page 12 of this press release.

 

These measures, along with revenues, is considered to be one of the key indicators of the Company’s ability to generate operating earnings and cash flow from its Maracás Menchen Mine. These cash operating costs measures do not have any standardized meaning prescribed by IFRS and differ from measures determined in accordance with IFRS. These measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These measures are not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.

 

In addition, the Company’s press release refers to cash operating costs excluding royalties. This is a non-GAAP performance measure and is calculated as cash operating costs less royalties, as disclosed in the following tables.

 

The following tables provide a reconciliation of cash operating costs per pound produced for the Maracás Menchen Mine to operating costs, excluding depreciation expense as per the 2019 annual consolidated financial statements.

 

11

 

 

 

Three months ended

 

 

 

December 31,
2019

 

December 31,
2018

 

Operating costs(i)

 

$

29,980

 

$

37,637

 

Professional, consulting and management fees(ii)

 

1,382

 

2,612

 

Other general and administrative expenses(iii)

 

340

 

2,348

 

Less: depreciation and amortization expense(iv)

 

(7,979

)

(7,347

)

Cash operating costs

 

$

23,723

 

$

35,250

 

Less: royalties(v)

 

(1,976

)

(8,958

)

Cash operating costs excluding royalties

 

$

21,747

 

$

26,292

 

V2O5 produced (000s lb)

 

6,638

 

5,721

 

Cash operating costs per pound produced ($/lb)

 

$

3.57

 

$

6.16

 

Cash operating costs per pound produced (US$/lb)(vi)

 

US$

2.70

 

US$

4.66

 

Cash operating costs excluding royalties per pound produced ($/lb)

 

$

3.28

 

$

4.60

 

Cash operating costs excluding royalties per pound produced (US$/lb)(vi)

 

US$

2.48

 

US$

3.48

 

 

(i)            Calculated as the amount for the Company’s Mine properties segment in note 18, less the amount disclosed for the Mine properties segment for the nine-month period in note 17 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2019: $123,841 — $93,861 = $29,980.

(ii)        Calculated as the amount for the Company’s Mine properties segment in note 18, less the amount disclosed for the Mine properties segment for the nine-month period in note 17 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2019: $6,013 — $4,631 = $1,382.

(iii)    Calculated as the amount for the Company’s Mine properties segment in note 18, less the amount disclosed for the Mine properties segment for the nine-month period in note 17 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2019: $1,145 — $805 = $340.

(iv)      Calculated as the amount per note 23, less the amount disclosed for the nine-month period in note 21 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2019: $31,668 — $23,689 = $7,979.

(v)          Calculated as the amount per note 23, less the amount disclosed for the nine-month period in note 21 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2019: $7,921 — $5,945 = $1,976.

(vi)      Calculated from “$/lb” using average $/US$ foreign exchange rates of 1.32 and 1.32 for Q4 2019 and Q4 2018, respectively.

 

 

 

Year ended

 

 

 

December 31,
2019

 

December 31,
2018

 

Operating costs(i)

 

$

123,841

 

$

135,746

 

Professional, consulting and management fees(ii)

 

6,013

 

9,680

 

Other general and administrative expenses(ii)

 

1,145

 

3,759

 

Less: depreciation and amortization expense(i)

 

(31,668

)

(31,031

)

Cash operating costs

 

$

99,331

 

$

118,154

 

Less: royalties(i)

 

(7,921

)

(22,678

)

Cash operating costs excluding royalties

 

$

91,410

 

$

95,476

 

V2O5 produced (000s lb)

 

23,318

 

21,671

 

Cash operating costs per pound produced ($/lb)

 

$

4.26

 

$

5.45

 

Cash operating costs per pound produced (US$/lb)(iii)

 

US$

3.21

 

US$

4.19

 

Cash operating costs excluding royalties per pound produced ($/lb)

 

$

3.92

 

$

4.41

 

Cash operating costs excluding royalties per pound produced (US$/lb)(iii)

 

US$

2.95

 

US$

3.38

 

 

(i)            As per note 23 of the Company’s annual consolidated financial statements for the years ended December 31, 2019 and 2018.

(ii)        As per the Mine properties segment in note 18 of the Company’s annual consolidated financial statements for the years ended December 31, 2019 and 2018.

(iii)    Calculated from “$/lb” using average $/US$ foreign exchange rates of 1.33 and 1.30 for the years ended December 31, 2019 and 2018, respectively.

 

Revenue Adjustment Payable

 

The Company’s press release refers to revenue adjustment payable, a non-GAAP performance measure used to provide investors with information about a key measure used by management as part of its monitoring of the financial liquidity of the Company.

 

This measure is considered to be one of the key components monitored relating to the Company’s projected financial liquidity and capital resources. This revenue adjustment payable does not have any standardized meaning prescribed by IFRS and differs from measures determined in accordance with IFRS. This measure is intended to provide additional

 

12

 

information and should not be considered in isolation or as a substitute for measures of performance, financial liquidity or capital resources prepared in accordance with IFRS. This measure is not necessarily indicative of cash flow from operating activities or disclosed commitments as determined and presented under IFRS.

 

The following table provides a reconciliation of this measure to trade receivables / payables as per the 2019 annual consolidated financial statements. At December 31, 2018, the Company had a trade receivable of $55,011, with a revenue adjustment payable of $nil.

 

 

 

December 31,
2019

 

Trade payables(i)

 

$

87,782

 

Add: amounts to be received included in trade payables

 

7,901

 

Revenue adjustment payable

 

$

95,683

 

Add: estimated future re-measurement for V2O5 sold(ii)

 

556

 

Estimated revenue adjustment payable for V2O5 sold at December 31, 2019

 

$

96,239

 

Revenue adjustment payable

 

$

95,683

 

Add: estimated future re-measurement for V2O5 sold(iii)

 

(1,295

)

Estimated revenue adjustment payable for V2O5 sold at the date of this press release

 

$

94,388

 

 

(i)            As per note 10 of the Company’s annual consolidated financial statements for the years ended December 31, 2019 and 2018.

 

(ii)        Estimated based on the quantity of V2O5 sold in the year ended December 31, 2019 that is subject to re-measurement. The estimate assumes there is no change in the price per pound of V2O5 for the remainder of the duration of the Company’s off-take agreement from that stated as being the price at December 31, 2019 in the “Liquidity and Capital Resources” section of the Company’s management discussion and analysis for the year ended December 31, 2019 and it assumes no receipt or payment of cash in relation to any amount in this table.

 

(iii)    Estimated based on the quantity of V2O5 sold in the year ended December 31, 2019 and in the two months ended February 29, 2020 that is subject to re-measurement. The estimate assumes there is no change in the price per pound of V2O5 for the remainder of the duration of the Company’s off-take agreement from that stated as being the price at the date of this press release  in the “Liquidity and Capital Resources” section of the Company’s management discussion and analysis for the year ended December 31, 2019 and it assumes no receipt or payment of cash in relation to any amount in this table.

 

Total Cash Costs

 

Total cash costs are on a non-GAAP performance measure that includes direct mine and mill costs, sales and distribution costs and the Company’s professional, consulting and management fees and other general and administrative expenses. Total cash costs exclude royalties, depreciation and amortization, share-based payments, foreign exchange gains or losses, reclamation costs, exploration and evaluation costs and capital expenditures. These costs are then divided by the pounds of V2O5 sold by the Company to arrive at total cash costs.

 

This measure differs from cash operating costs per pound produced in that it includes all sales and distribution costs, professional, consulting and management fees and other general and administrative expenses, rather than just those from the Mine properties segment, and is calculated on pounds sold rather than pounds produced. The Company believes this will be a more accurate reflection of its unit costs given the anticipated difference between pounds produced and pounds sold after the end of the Company’s off-take agreement on April 30, 2020.

 

This total cash costs measure does not have any standardized meaning prescribed by IFRS and differs from measures determined in accordance with IFRS. This measure is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. This measure is not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.

 

(1)    Conversion of tonnes to pounds, 1 tonne = 2,204.62 pounds or lbs.

 

13

 

(2)    The cash operating costs per pound produced and cash operating costs excluding royalties per pound produced reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this press release.

 

(3)    Defined as current assets less current liabilities per the consolidated statements of financial position.

 

(4)    Revenues per pound sold and vanadium sales per pound sold are calculated based on the quantity of V2O5 sold during the stated period. Revenue adjustment per pound is calculated based on the quantity of V2O5 sold that is subject to re-measurement. This may or may not differ to the quantity sold. Accordingly, these three measures may not, and are not intended to, sum.

 

(5)    The revenue adjustment payable and revenue adjustment per pound is on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this press release.

 

(6)    Effective grade represents the percentage of magnetic material mined multiplied by the percentage of V2O5 in the magnetic concentrate.

 

(7)    Global recovery is the product of crushing recovery, milling recovery, kiln recovery, leaching recovery and chemical plant recovery.

 

(8)    Total cash costs  are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this press release.

 

(9)    GAAP — Generally Accepted Accounting Principles.

 

14

Exhibit 99.12

 

GRAPHIC

 

ANNUAL INFORMATION FORM

FOR THE YEAR ENDED DECEMBER 31, 2019

 

Dated March 20, 2020

 

 

 

TABLE OF CONTENTS

 

 

Page

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION

1

 

 

CAUTIONARY NOTE TO UNITED STATES INVESTORS

3

 

 

MARKET AND INDUSTRY DATA

3

 

 

OTHER INFORMATION

3

 

 

QUALIFIED PERSON

3

 

 

CURRENCY PRESENTATION AND DATE OF INFORMATION

4

 

 

CORPORATE STRUCTURE

5

 

 

GENERAL DEVELOPMENT OF THE BUSINESS

6

 

 

DESCRIPTION OF THE BUSINESS

8

 

 

RISK FACTORS

23

 

 

DIVIDENDS

42

 

 

DESCRIPTION OF CAPITAL STRUCTURE

42

 

 

MARKET FOR SECURITIES

43

 

 

DIRECTORS AND OFFICERS

43

 

 

AUDIT COMMITTEE DISCLOSURE

46

 

 

LEGAL PROCEEDINGS AND REGULATORY ACTIONS

48

 

 

INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS

48

 

 

TRANSFER AGENT AND REGISTRAR

48

 

 

MATERIAL CONTRACTS

49

 

 

INTERESTS OF EXPERTS

49

 

 

ADDITIONAL INFORMATION

49

 

 

SCHEDULE A - GLOSSARY

 

 

 

SCHEDULE B - AUDIT CHARTER

 

 

2020 ANNUAL INFORMATION FORM

 

i

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION

 

This annual information form (“AIF”), including documents incorporated by reference herein, contains “forward-looking information” and “forward-looking statements” within the meaning of applicable Canadian and United States securities laws (together, “forward-looking information”) concerning the Company’s projects, capital, anticipated financial performance, business prospects and strategies and other general matters. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those included in the forward-looking information. The use of words such as “intend”, “anticipate”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “should”, “believe” and similar expressions are intended to identify forward-looking information. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance are not statements of historical fact and may constitute forward-looking information. Statements relating to Mineral Resources are also forward-looking information, as they involve the implied assessment, based on certain estimates and assumptions that the Mineral Resources described can be profitably produced in the future. There is no certainty that it will be commercially viable to produce any portion of the Mineral Resources.

 

Forward-looking information includes statements with respect to:

 

·            the Company’s sales operations and anticipated sales of vanadium products;

 

·            the Company’s goals regarding development of its projects and further exploration and development of its properties;

 

·            the Company’s proposed plans for advancing its projects, and potential future exploration and development projects;

 

·            the Company’s expectations regarding the completion of, resulting production from, and anticipated benefits of, the Ferrovanadium Conversion Plant;

 

·            the Company’s expectations regarding the completion of, and resulting production from, the anticipated kiln feed rate improvements;

 

·            expectations regarding the continuity of mineral deposits;

 

·            future prices of V2O5;

 

·            future production at our Maracás Menchen Mine;

 

·            the results in the Technical Report including resource estimates;

 

·            expectations regarding any environmental issues that may affect planned or future exploration and development programs and the potential impact of complying with existing and proposed environmental laws and regulations;

 

·            receipt and timing of third party approvals;

 

·            government regulation of mineral exploration and development operations in Brazil;

 

·            expectations regarding any social or local community issues in Brazil that may affect planned or future exploration and development programs; and

 

·            statements in respect of V2O5 demand and supply.

 

These statements and information are only predictions based on current information and knowledge, some of which may be attributed to third party industry sources. Actual future events or results may differ materially. Undue reliance should not be placed on such forward-looking information, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. By its nature, forward-looking information involves numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking information will not be realized.

 

The following are some of the assumptions upon which forward-looking information is based:

 

·            that general business and economic conditions will not change in a material adverse manner;

 

·            demand for, and stable or improving price of, V2O5 and FeV;

 

·            that the Company will enter into agreements for the sales of vanadium products on favourable terms and for the sale of substantially all of its annual production capacity;

 

1

 

·            receipt of regulatory and governmental approvals, permits and renewals in a timely manner;

 

·            that the Company will not experience any material accident, labour dispute or failure of plant or equipment or other material disruption in the Company’s operations at the Maracás Menchen Mine;

 

·            the availability of financing for operations and development;

 

·            the Company’s ability to procure equipment and operating supplies in sufficient quantities and on a timely basis;

 

·            that the Company will have sufficient capital resources available for the build out of the Ferrovanadium Conversion Plant;

 

·            that the Ferrovanadium Conversion Plant will be completed on budget and in a reasonable timeframe;

 

·            that the Company’s expectations as to kiln feed rate improvements will be completed on time;

 

·            that the estimates of the Mineral Resources and Mineral Reserves at the Maracás Menchen Mine are within reasonable bounds of accuracy (including with respect to size, grade and recovery);

 

·            the Company’s ability to attract and retain skilled personnel and directors; and

 

·            the accuracy of the Company’s Mineral Reserves and Mineral Resource estimates (including size, grade and recoverability) and the geological, operational and price assumptions on which these are based.

 

Actual results could differ materially from those anticipated in this forward-looking information as a result of the risks and uncertainties including, without limitation:

 

·            volatility in prices of, and demand for, V2O5 or FeV;

 

·            risks inherent in mineral exploration and development;

 

·            uncertainties associated with estimating Mineral Resources and Mineral Reserves;

 

·            uncertainties related to title to the Company’s mineral projects;

 

·            revocation of government approvals;

 

·            tightening of the credit markets, global economic uncertainty and counterparty risk;

 

·            failure of plant, equipment or processes to operate as anticipated;

 

·            unexpected events and delays during construction and development;

 

·            competition for, among other things, capital and skilled personnel;

 

·            geological, technical and drilling problems;

 

·            fluctuations in foreign exchange or interest rates and stock market volatility;

 

·            rising costs of labour and equipment;

 

·            disruption caused by labour actions;

 

·            risks associated with political and/or economic instability in Brazil;

 

·            inherent uncertainties involved in the legal dispute resolution process, including in foreign jurisdictions;

 

·            changes in income tax and other laws of foreign jurisdictions; and

 

·            other factors discussed under “Risk Factors” in this AIF.

 

Assumptions relating to the potential mineralization of the Maracás Menchen Mine are discussed in the Technical Report which is available under the Company’s profile on SEDAR.

 

Additional risks and uncertainties not currently known to the Company, or that the Company currently deems to be immaterial, may also materially and adversely affect the Company’s business and prospects. Should one or more of these risks and uncertainties materialize, or should any of the underlying assumptions prove incorrect, actual results may vary materially from those described in forward-looking information.

 

Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking information, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. The reader is cautioned not to place undue reliance on forward-looking information.

 

The forward-looking information is presented for the purpose of assisting investors in understanding the Company’s plans, objectives and expectations in making an investment decision and may not be appropriate for other purposes. This forward-looking information is expressly qualified in its entirety by this cautionary statement. Forward-looking

 

2

 

information contained in this AIF or documents incorporated herein by reference are made as of the date of this AIF or the document incorporated herein by reference, as applicable, and are accordingly subject to change after such date. The Company disclaims any obligation to update any such forward-looking information to reflect events or circumstances after the date of such information, or to reflect the occurrence of anticipated or unanticipated events, except as required by law.

 

CAUTIONARY NOTE TO UNITED STATES INVESTORS

 

This AIF uses the terms “Measured”, “Indicated” and “Inferred” Mineral Resources. United States investors are advised that while such terms are recognized and required by Canadian regulations, the United States Securities and Exchange Commission does not recognize them. Inferred Mineral Resources have a great amount of uncertainty as to their existence, and as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies. United States investors are cautioned not to assume that all or any part of Measured or Indicated Mineral Resources will ever be converted into Mineral Reserves. United States investors are also cautioned not to assume that all or any part of an Inferred Mineral Resource exists, or is economically or legally mineable.

 

MARKET AND INDUSTRY DATA

 

Market and industry data contained and incorporated by reference in this AIF concerning economic and industry trends is based upon good faith estimates of our management or derived from information provided by industry sources. The Company believes that such market and industry data is accurate and that the sources from which it has been obtained are reliable. However, we cannot guarantee the accuracy of such information and we have not independently verified the assumptions upon which projections of future trends are based.

 

OTHER INFORMATION

 

In this annual information form, references to “Largo”, the “Company”, and “we” mean Largo Resources Ltd. and its subsidiaries as applicable (unless the context otherwise requires).

 

The disclosure in this AIF is supplemented throughout the year by, and is to be read in context with, subsequent continuous disclosure filings including news releases, material change reports, financial statements, management discussion and analysis and technical reports filed under NI 43-101. This AIF contains information which the Company believes, in context and in exercising its judgement, to be material. Information which the Company, in exercising its judgement, believes, in context, is not material (or, due to the passage of time, is no longer material), has not been included in this AIF.

 

QUALIFIED PERSON

 

Except as otherwise noted in this AIF, Mr. Paul Sarjeant, B.Sc. P. Geo is the Qualified Person (as that term is defined under NI 43-101) who has reviewed and approved the technical disclosure in this AIF. Mr. Sarjeant is the Manager, Geology of the Company. For a description of key assumptions, parameters and methods used to estimate Mineral Reserves and Resources, as well as data verification procedures and a general discussion of the extent to which the estimates may be affected by any known environmental, permitting, legal title, taxation, sociopolitical, marketing or other relevant factors, please see the Technical Report for our material property as filed by us on SEDAR at www.sedar.com

 

3

 

CURRENCY PRESENTATION AND DATE OF INFORMATION

 

This AIF contains references to Canadian dollars, United States, Brazilian reals and to the European Euro. All dollar amounts referenced herein, unless otherwise indicated, are expressed in Canadian dollars “$”. United States dollars may be referred to as “United States dollars” or “US$”. Brazilian reals may be referred to as “Brazilian reals” or “R$”, and the European Euro may be referred to as “Euro” or “€”.

 

The following tables set out the average annual exchange rates according to information published by the Bank of Canada and the resulting currency conversion if one US$, one Brazilian real and one € were exchanged for the equivalent in Canadian dollar(s).

 

 

 

Year Ended December 31

 

One US Dollar

 

2019

 

2018

 

2017

 

Closing in Cdn Dollar(s)

 

$

1.3269

 

$

1.2957

 

$

1.2986

 

 

 

 

Year Ended December 31

 

One Brazilian Real

 

2019

 

2018

 

2017

 

Closing in Cdn Dollar(s)

 

$

0.3371

 

$

0.3566

 

$

0.4071

 

 

 

 

Year Ended December 31

 

One Euro Dollar

 

2019

 

2018

 

2017

 

Closing in Cdn Dollar(s)

 

$

1.4856

 

$

1.5302

 

$

1.4560

 

 

Based on information published by the Bank of Canada, (i) the value of one US$, if exchanged for one Canadian dollar, would have been $1.3269 for the month of December of 2019, (ii) the value of one Brazilian real, if exchanged for one Canadian dollar, would have been $0.3371 for the month of December of 2019, and (iii) the value of one Euro dollar, if exchanged for one Canadian dollar, would have been $1.4856 for the month of December of 2019.

 

On March 16, 2020, the indicative exchange rate for Canadian dollars in terms of the United States dollar, as quoted by the Bank of Canada, was US$1.00 = C$1.3964, the exchange rate into R$, was 1 real = C$0.2810, and the exchange rate into €, was €1 = C$1.5574.

 

All information in this AIF is given as of December 31, 2019, unless otherwise indicated. The Company’s fiscal year end is December 31.

 

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CORPORATE STRUCTURE

 

Incorporation and Registered Office

 

Largo is a company continued under the Business Corporations Act (Ontario).

 

The Company was originally incorporated under the name Kaitone Holdings Ltd. in the province of British Columbia on April 18, 1988. On September 3, 1991, the Company changed its name to Consolidated Kaitone Holdings Ltd. On May 8, 2003, the Company changed its name to Largo Resources Ltd. On June 10, 2004, the Company continued to the Province of Ontario and filed articles of amendment to amend its authorized share capital to an unlimited number of Common Shares. On October 17, 2014, the Company completed a consolidation of its Common Shares on the basis of one (1) post-consolidation Common Share for each ten (10) pre-consolidation Common Shares.

 

The head office and registered office of the Company is located at 55 University Avenue, Suite 1105, Toronto, Ontario, Canada M5J 2H7.

 

Intercorporate Relationships

 

The following chart shows our principal subsidiaries, their jurisdiction of incorporation and the percentage of voting securities we beneficially own or over which we have control or direction:

 

GRAPHIC

 

Notes:

 

(1)   Under Brazilian law, a corporation must have at least two shareholders or quotaholders, as applicable. Shareholders or quotaholders, as applicable, can be individuals or legal entities. Accordingly, Mr. Paulo Guimaraes Misk, President of the Brazilian operations of the Company, holds an interest of <0.001% (101 shares) and <0.017% (2 quotas) in the capital stock of Mineração Currais Novos Ltda. and Campo Alegre de Lourdes Ltda., respectively.

 

(2)   The remaining shares of Vanádio are owned by Companhia Baiana de Pesquisa Mineral, an entity controlled by the Brazilian State of Bahia, see also “Description of the Business — Material Project - Maracás Menchen Mine - Project Description, Location and Access”.

 

(3)   Holds a 100% interest in the tungsten-molybdenum Northern Dancer Project in the Yukon, Canada.

 

(4)   Holds a 100% interest in the tungsten tailings Currais Novos Project, in Brazil.

 

(5)   Holds a 100% interest in the iron-vanadium Campo Alegre Project in Brazil.

 

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(6)   Holds a 100% interest in our Maraçãs Menchen Mine.

 

(7)   These entities facilitate the Company’s sales and distribution capabilities, see also “Description of the Business — Marketing and Distribution”.

 

GENERAL DEVELOPMENT OF THE BUSINESS

 

Largo is a Canadian natural resource development and exploration company listed on the TSX and OTCQB.

 

We are a strategic mineral company focused on the production of vanadium pentoxide (V2O5) at our Maracás Menchen Mine located in Bahia, Brazil, being the Company’s sole material project for the purposes of NI 43-101. The Maracás Menchen Mine is our principal operating asset and accounted for all of our revenues since commencing operations in 2014.

 

Vanadium is primarily used as an alloy to strengthen steel and reduce its weight. Vanadium enhanced steels are currently used in a vast range of products including, rebar, automobiles, transport infrastructure and is increasingly being adopted in other products and applications that demand stronger and lighter steel.

 

We also have a portfolio of secondary projects consisting of (i) the Campo Alegre de Lourdes project, an iron vanadium property in Bahia, Brazil, (ii) the Northern Dancer project, a tungsten and molybdenum property in Yukon, Canada, and (iii) Currais Novos, a tungsten project. As of the date of this AIF, none of these projects are operational, and we do not consider any of these projects to be material properties

 

Three Year History

 

The following is a summary of the general development of the Company’s business.

 

Equity Financings

 

In January 2017, the Company completed a non-brokered private placement offering (the “January 2017 Financing”) of an aggregate of 35,740,119 units at a price of $0.45 per unit for aggregate gross proceeds of approximately $16.1 million. Each unit was comprised of one Common Share and one warrant exercisable into one Common Share at a price of $0.65 per share for a period ending three years from the date of issuance. ARC Funds purchased 14,395,675 units and CIH acquired 10,450,000 units.

 

In December 2017, the Company completed a non-brokered private placement (the “December 2017 Financing”) of an aggregate of 35,985,749 units at a price of $0.82 per unit for aggregate gross proceeds of approximately $29.5 million (including the Banco Pine Debt Settlement, defined herein, see “General Development of the Business — Three Year History — Debt Facilities”. Each unit was comprised of one Common Share and one-half of one Common Share purchase warrant, with each whole warrant entitling the holder thereof to purchase one Common Share at a price of $1.15 per share for a period expiring five years from the date of issuance. Concurrent with the closing of the offering the Company completed the restructuring of its Pine Facility (defined herein) by converting its outstanding debt of US$5,991,687.51 into Common Shares (the “Banco Pine Debt Settlement”), see also “General Development of the Business — Three Year History — Debt Facilities”. Banco Pine S.A (“Banco Pine”) received 7,306,934 units in full and final satisfaction of its debt.

 

On July 24, 2018, the Company completed a secondary offering by way of short form prospectus of 69,000,000 Common Shares at a price of $1.40 per share.

 

On November 15, 2018, the Company amended the terms of all outstanding warrants issued in connection with the March 2016 Financing, October 2016 Financing, January 2017 Financing, December 2017 Financing, and the Bridge Loan, permitting the cashless exercise of all such warrants. To date, 21,180,324 warrants have been exercised on a cashless basis.

 

On February 6, 2019, the Company filed a base shelf prospectus qualifying the distribution of up to $750 million of securities of the Company.

 

6

 

Senior Secured Notes

 

On May 22, 2018, the Company completed a note offering of US$150.0 million (the “Note Offering”) in aggregate principal amount of 9.25% senior secured notes due in 2021 (the “Notes”). The Company completed the Note Offering in order to simplify its existing debt capital structure and to eliminate a covenant under its 2017 Facility which restricts the movement of funds from the Company’s operating entity, Vanádio, to the Canadian parent. On August 2, 2018, proceeds from the Note Offering were used to repay US$144.1 million owing under the BNDES Facilities.

 

Between September 2018 and July 2019, the Company repurchased and retired all outstanding Notes at redemption prices ranging between 103% and 105.625% of the principal amount of the Notes, plus accrued and unpaid interest due on the Notes.  The final payment for the redemption of all outstanding Notes was made on July 7, 2019.

 

Debt Facilities

 

In December 2016, the Company entered into definitive agreements with the Banks for a new debt facility (the “2017 Facility”) and the restructuring of its existing facilities with the Banks related to its Maracás Menchen Mine. The 2017 Facility provided the Company with a working capital facility of up to R$140 million to be used for the payment of principal and interest falling due during 2017 on the existing loan from the BNDES Facility as well as principal and interest falling due during 2017 on the existing debt facilities.

 

On February 24, 2017, the Company agreed to a new schedule of payments for its Pine Facility and in connection therewith, the Company was required to pay a restructuring fee of US$100 million through the delivery of 263,157 common shares of the Company which was satisfied in March 2017.

 

Also in April 2017, the Company announced that it had entered into a US$2 million six-month term loan with a shareholder of the Company (the “Bridge Loan”). Pursuant to the terms of the Bridge Loan, the Company issued 400,000 Common Share purchase warrants to the lender with each such warrant being exercisable to acquire one Common Share at a price of $0.50 per share until December 31, 2020. The loan was repaid in December 2017.

 

On April 4, 2018, the Company along with its operating subsidiary, Vanádio, completed a restructuring and conversion of Vanádio’s Pine Facility. As a result of the restructuring, approximately US$9.0 million of debt owed by Vanádio was paid down with the remaining balance being restructured for payment over approximately 6.5 years. This restructuring resulted in the complete restructuring of the Company and Vanádio’s previously existing debt facilities with the Banco Pine.

 

On August 2, 2018, proceeds from the Note Offering were used to repay all outstanding amounts owing under the BNDES Facility.

 

On September 27, 2018, Vanádio completed the repayment in full to Banco Pine of its outstanding debt of approximately $22.9 million.

 

Operations

 

In October 2017, the Company announced the result of the Technical Report containing a Life of Mine Plan for the Maracás Menchen Mine, a feasibility study for the Campbell Pit at the Maracás Menchen Mine and a PEA for Gulçari A Norte, Gulçari B, Novo Amparo, Novo Amparo Norte, Campbell in pit resources and São José Near Mine Targets at the Maracás Menchen Mine. For more information see “Description of the Business — Material Project  — Maracás Menchen Mine”.

 

On October 5, 2018, INEMA renewed the Company’s operating license for the Maracás Menchen Mine. The renewed operating license is valid for a period of two years, and may be further extended within six months of the operating license’s new expiry date for an additional period of between two and five years.

 

On November 2, 2018, INEMA published the Company’s environmental license for the Expansion of the Maracás Menchen Mine.

 

7

 

On December 19, 2018, the Company reported on 20 of 24 NQ diamond drill holes that it had drilled at its Novo Amparo Norte deposit in 2018 as part of a second phase drill program, see “Description of the Business — Exploration, Development, and Production”.

 

On June 11, 2019, the Company announced the results of its 2019 exploration program returning a significant increase to the overall resource bases at its Novo Amparo Norte deposit in Maracás, Brazil. The exploration program resulted in the conversion of Inferred Mineral Resources to Measured and Indicated categories, in addition to increasing the overall Inferred Mineral Resources. See “Description of the Business — Material Projects — Exploration, Development, and Production”.

 

On June 19, 2019, the Company announced that, effective September 2019, Mr. Paul Vollant would be joining as Director of Sales and Trading with Largo Commodities Trading Limited (“Largo Ireland”). Mr. Vollant is tasked with leading the development of the Company’s sales and trading business and building out the Company’s presence in the global vanadium market.

 

On August 20, 2019, the Company provided notice to Glencore International AG of the nonrenewal of its Offtake Agreement, terminating effective April 30, 2020, see “Description of the Business — Marketing and Distribution”.

 

On September 8, 2019, Paulo Misk, formerly Chief Operating Officer of the Company, was promoted to President and Chief Executive Officer, replacing the vacancy created by Mr. Mark Smith’s departure from the Company. Concurrently, Mr. Alberto Arias was named non-executive Chairman of the Company’s Board of Directors.

 

On October 21, 2019, Mr. Francesco D’Alessio joined Largo Resources USA Inc. (“Largo USA”) as Head of Sales, Americas. Mr. D’Alessio will be supporting the Company’s vanadium sales and trading business with a particular focus on North and South American markets.

 

On November 13, 2019, the Company approved the construction of a ferrovanadium conversion plant at the Maracás Menchen Mine (the “Ferrovanadium Conversion Plant”) which is estimated to be completed in Q1 2021. Ferrovanadium is essential in the production of steel products, which make up approximately 91% of global vanadium consumption. When complete, the Ferrovanadium Conversion Plant is anticipated to create downstream advantages as it vertically integrates the conversion of the Company’s V2O5, eliminating third party convertors, and will enable the Company to supply ferrovanadium consumers directly.

 

In December, 2019, the Company completed the Expansion of the Maracás Menchen Mine.

 

On January 22, 2020, the Company announced the launch of VPURE and VPURE+, newly developed brands for the Company’s industry preferred line of vanadium products.

 

DESCRIPTION OF THE BUSINESS

 

General

 

Largo is a Canadian natural resource company listed on the TSX and OTCQX and focused on the production of VPURE Flake, VPURE+ Flake and VPURE+ Powder. Our principal operating asset is the Maracás Menchen Mine located in Bahia, Brazil, which accounted for all of our revenues since it commenced operations in 2014. According to the Technical Report, effective as of May 2, 2017, the Maracás Menchen Mine had one of the world’s highest-grade vanadium deposits with Proven Mineral Reserves of 17.57 million tonnes at an average grade of 1.14% V2O5 and Probable Mineral Reserves of 1.44 million tonnes with an average grade of 1.26% V2O5. On November 2, 2018, INEMA published the Company’s environmental license for the Expansion of the Maracás Menchen Mine, and the Company completed the Expansion in December 2019. The Maracás Menchen Mine produces V2O5 products and effective as of May 2, 2017 had a current mine life of over 10 years, based on its Proven Mineral Reserves and Probable Mineral Reserves as set forth in the Technical Report.

 

8

 

We are currently one of the lowest cost producers of V2O5 in the world due to the characteristics of the Maracás Menchen Mine’s ore body and our operating efficiency. In August 2019 the Company gave notice of its intention to terminate the Offtake Agreement with Glencore International AG, effective April 30, 2020. As a result, starting on May 1, 2020, Glencore will not be obligated to purchase any vanadium products from the Maracás Menchen Mine. The Company has established a team of sales professionals to lead global sales of the Company’s vanadium products, see “General Development of the Business — Three Year History — Operations”, and “Description of the Business — Marketing and Distribution”.

 

In November, 2019, the Company approved the construction of the Ferrovanadium Conversion Plant which is estimated to be completed in Q1 2021. The completion of the Ferrovanadium Conversion Plant is anticipated to create downstream advantages for the Company as it will vertically integrate the conversion of the Company’s V2O5, eliminating third party convertors, and enabling the Company to supply ferrovanadium consumers directly, see “General Development of the Business — Three Year History — Operations”.

 

We also have a portfolio of secondary projects consisting of (i) the Campo Alegre de Lourdes project, an iron vanadium property in Bahia, Brazil, (ii) the Northern Dancer project, a tungsten and molybdenum property in Yukon, Canada and (iii) Currais Novos, a tungsten project. As of the date of this AIF, none of these projects are operational and we do not consider any of these projects to be material properties

 

The Vanadium Industry

 

Vanadium is a naturally-occurring, silvery-grey element with an atomic number of 23. It is not typically found as a free-form element in nature, but rather exists in an oxidation state as part of mineral deposits, including vanadinite, carnotite and magnetite ores, or within fossil fuels. Vanadium is harder than most metals, while retaining malleable and ductile features, and is corrosion-resistant to various chemicals, including alkalis, hydrochloric and sulfuric acids and salt water. Vanadium also has high melting and boiling points of 1910°C and 3407°C, respectively, enabling it to retain its solid form in a variety of external conditions.

 

These key properties make vanadium ideal for use in metal and steel alloying as it helps reinforce the level of strength, toughness and heat and chemical resistance required for various industry applications such as construction, aerospace and automobiles.

 

Vanadium consumption is dominated by its use in steel applications, which, as of 2019, is estimated to account for approximately 91% of total global consumption. Within this application, the use of vanadium can be further distinguished between the use of vanadium in high-strength low-alloy (“HSLA”) steel, full alloy steel, carbon steel and other steels. HSLAs include small amounts of vanadium, niobium or titanium, or a combination of these microalloying elements, to induce higher strength and a finer-grained structure. The higher strength enables the use of smaller quantities of raw materials in many applications. HSLAs are considered to be a strong substitute for carbon manganese steel which has lower tensile strength.

 

The balance of global vanadium consumption, approximately 9% in total, is used for aerospace alloys, chemical catalysts and other specialty applications such as renewable energy. These industries and applications most often require high purity vanadium which command premium pricing.

 

Vanadium Demand Drivers

 

Reinforcing Steel Bars

 

In the construction industry, vanadium is used to achieve a certain level of tensile strength in reinforcing bars (“rebar”) and other steel components used in the construction of bridges, tunnels and buildings. Historically, a significant portion of vanadium demand had been driven by “Grade-3” rebar standards in the western world. This end market experienced significant growth starting in 2004 when China adopted “Grade-3” rebar standards aimed at improving structural performance during seismic events. However, in recent years, demand in this application in China has been degraded by the illegal utilization of the quench and temper method (the “Q&T method”), which allows the steel to meet the “Grade 3” tensile strength requirements but not the critical elongation requirements that assure good performance in seismic

 

9

 

activity. However, China has recently responded to this trend and is aiming to prevent the use of the Q&T method through the introduction of new rebar specifications made effective November 1, 2018 that cannot be achieved with the Q&T method. This is currently causing Chinese producers of rebar to revert back to employing the use of vanadium alloyed steels. The revised standard also eliminates grade 2 rebar which is lower strength and can be produced without any microalloy.

 

Shifts in consumer preferences and government fuel efficiency standards requiring more fuel-efficient vehicles are encouraging automobile manufacturers to adopt HSLA steel in automotive applications. Vanadium-containing HSLAs and other high-strength steels provide the desirable physical properties required to meet crucial automotive standards, including stiffness, crash performance and forming characteristics, while remaining competitive with other lightweight alternatives, such as carbon fiber reinforced polymers. We anticipate this optimal cost-weight-strength ratio will drive vanadium demand in automotive end market uses.

 

High Performance Alloys

 

Vanadium is also used in the production of high performance alloys, specifically titanium alloys primarily used in the aerospace industry. Titanium-vanadium alloys’ low density, high strength and excellent fatigue properties make it a key input to aerospace engines, gas turbines and airframes. Titanium-vanadium alloys accounted for approximately 2.5% of global vanadium consumption in 2019 and are expected to continue growing as major manufacturers seek to meet their delivery schedules and maintain stringent industry specifications.

 

Energy Storage Systems

 

Over the long-term, we expect new applications to drive incremental demand for vanadium use, especially certain specialty applications that demand high-purity vanadium content. While these sources of demand account for a limited amount of existing consumption, we expect the ongoing development and maturation of certain technologies to spur additional long-term demand for vanadium outside of consumption in steel. Global climate change trends are encouraging the research and implementation of large energy storage systems to support renewable energy sources. Vanadium redox flow batteries, which use vanadium ions in different oxidation states to store potential chemical energy, are considered to be a cost-competitive alternative to lithium ion technology for large-scale, long duration energy storage. We believe our high-purity products are well-positioned to take advantage of these quickly growing end markets.

 

Vanadium Supply Trends

 

Vanadium supply dynamics are primarily driven by both the nature of production methods and the location of vanadium sources. Because vanadium exists naturally in an oxidized form, it is typically derived from the processing of vanadium-bearing ores, slag or residues and then converted into an intermediate vanadium oxide product. The majority of vanadium is extracted from vanadium-bearing slag, a by-product of the steel making process in regions where vanadium titanium magnetite (“VTM”) deposits are present. VTM ores are processed in steel mills, with the vanadium-bearing slag subsequently processed for vanadium extraction. Due to its by-product nature, vanadium supply from steel production is generally price-inelastic with supply driven by underlying trends in the steel industry and competitiveness of the specific iron ore mines and steel mills utilizing VTM ore, rather than by output from primary mining operations. For example, significant growth in steel production in China from 2004 to 2014 resulted in an eightfold increase in vanadium slag production derived from steel making. In 2019, steel mills in China, Russia and New Zealand supplied approximately 70% of vanadium through their slag by-product.

 

The cost competitiveness of these sources is greatly influenced by the initial cost of the primary products, rather than the cost of extracting vanadium from the slag. This has meaningful implications on slag-sourced vanadium globally. While Chinese and Russian steel mills are the major sources of vanadium as a by-product from steel production, these sources are becoming less competitive in the global steel market since the locally sourced VTM ores used in these steel mills are typically high in titanium and low in iron. In particular, the uneconomic nature of these select VTM ores relative to seaborne iron ores that do not contain vanadium has led to diminished use of VTM ores in steel production at some vanadium producing mills. This has in turn led to a meaningful reduction in supply of vanadium from slag. Examples of such significant shutdowns include the liquidation of the Mapochs Mine following closure of Highveld Steel and Vanchem

 

10

 

Vanadium Products in South Africa and discontinuation of the use of VTM ore at the Jianlong Steel Group’s Heilongjiang steel mill. The continued growth in Chinese seaborne iron ore imports (which contain no vanadium) partially replacing locally mined VTM ore is expected to further limit vanadium supply from slag processing.

 

The next largest source of vanadium supply is from mining operations where vanadium is the primary commodity produced. Primary producers based in South Africa, Brazil and China extract vanadium directly from VTM ores, which accounts for 18% of supply. Because these projects are not associated with any steel processing, their relative cost competitiveness is largely influenced by mine-specific factors, most importantly ore grade. Primary production of vanadium in China is sourced from a carbonaceous shale known as stone coal, which contains a relatively low grade of 0.2% to 1.0% of vanadium. The Company’s Maracás Menchen Mine is one of only three large-scale primary vanadium mines globally.

 

The remainder of global vanadium supply is derived from secondary vanadium sources. Secondary sources, on the other hand, derive vanadium from residues, ashes and spent catalysts that are a by-product of the burning or refining of vanadium-bearing carboniferous materials, including coal and oils. Similar to vanadium produced in the steel making process, the economic viability of these secondary sources depends largely on the underlying trends in the markets for other materials.

 

Owing to the inexpensive, but highly constrained quantity of vanadium supply from the steel making processes, and the challenging and often expensive processes of sourcing vanadium from primary and secondary sources, the cost curve is less responsive to changes in demand levels.

 

New primary sources of vanadium are expected to be relatively limited in the next few years due to the limited number, and stage of advancement of, projects expected to come online.

 

Vanadium Prices

 

According to the London Metal Bulletin, as of March 13, 2020, V2O5 was trading in the range of US$4.80 to US$5.50 per pound of V2O5, and as of December 27, 2019 was trading in the range of US$4.80 to US$5.85 per pound V2O5. The price of V2O5 decreased materially in 2019, starting the year at US$15.50 to US$16.50 per pound V2O5 before falling almost continuously until the end of the year when it bottomed out. From January 2020 to March 2020, the price of V2O5 has experienced volatility and any gains realized over the period have been tempered by fears of a global economic slowdown from the COVID-19 pandemic, see “Risk Factors — Risks Related to the Business and Operations”.

 

Material Project  — Maracás Menchen Mine

 

Technical Report

 

At present, the only material project of the Company for the purposes of NI 43-101 is the Maracás Menchen Mine and the primary focus of the Company is to continue to meet and exceed nameplate capacity at the Maracás Menchen Mine on a consistent and continued basis.

 

A report entitled “An Updated Mine Plan, Mineral Reserve and Preliminary Economic Assessment of the Inferred Resources” and issued on October 26, 2017 and effective as of May 2, 2017 (the “Technical Report”) was prepared for the Company by GE21. The Technical Report is available under the Company’s profile on SEDAR at www.sedar.com and on the Company’s website at www.largoresources.com.

 

The following information is based, in part, on Technical Report. Non-material updates since the date of the Technical Report are based on the Company’s previously filed financial statements and MD&As. The entire Technical Report is incorporated by reference herein, and readers are encouraged to review the complete text of the Technical Report. A full list of references cited by the authors are contained in the Technical Report. Porfírio Cabaleiro Rodriguez, Mining Engineer, BSc (Mine Eng), MAIG employed by GE21, Leonardo Apparicio da Silva, Mining Engineer, BSc (Min Eng), MSc (Met Eng), MAIG associated to GE21, and Fabio Valerio Xavier, Geologist, BSc, Geol, MAIG associated to GE21, are the Qualified Persons as defined in NI 43-101 responsible for the Technical Report and are all independent of the Company.

 

11

 

The Technical Report is intended to be read as a whole, and sections should not be read or relied upon out of context. The Technical Report contains the expression of the professional opinions of a Qualified Person (as defined under NI 43-101) based upon information available at the time of preparation of the Technical Report. The following disclosure, which is extracted in part from the Technical Report, is subject to the assumptions and qualifications contained in the Technical Report.

 

Project Description, Location and Access

 

The Maracás Menchen Mine is a high-grade, open pit vanadium mine located in the state of Bahia, Brazil that began producing V2O5 flake in the third quarter of 2014. The mine produces V2O5 rich ore which is sent to an on-site processing plant which produced 10,577 tonnes of V2O5 flake in 2019.

 

The Maracás Menchen Mine is located within the greater municipality of Maracás in the eastern Bahia State Brazil and lies approximately 250 km southwest of the city of Salvador, the capital of Bahia. Access to the Maracás Menchen Mine is via paved secondary road from the main coastal highway to the town of Maracás (350 km) and then a further 50 km via secondary highway and gravel road to the mine site. Access to water, the electrical power grid and railroad is within reasonable distance, and a trained workforce and local unskilled labour is available within the State of Bahia, the country of Brazil and the town of Maracás.

 

The property consists of eighteen (18) concessions totalling 17,690.5 hectares, and all of the permits are owned 100% by Vanádio de Maracás S.A. (“Vanádio”), which is controlled 99.94% directly and indirectly by Largo. Of this total, Vanádio controls two Mining permits of 1,000 hectares each, and one exploration permit (977.20 hectares). Largo controls the remaining fourteen exploration permits and final mining permit (1,713.88 hectares). All concessions are in good standing and there are no underlying royalty payments to any private entities. Companhia Baiana de Pesquisa Mineral (“CBPM”), an entity owned by the Bahia State Geological Survey, owns the underlying minerals rights to most of the project area, with the exception of Novo Amparo Norte (“NAN”) which is owned by Vanádio. Under an agreement, CBPM retains a 3% royalty on gross sales revenue for all of the concessions with the exception of NAN. The property is also subject to a royalty of 2% on certain operating costs under the Brazilian Mining Act and, under a separate agreement, Anglo Pacific PLC receives a 2% net smelter royalty in the Maracás Menchen Mine. Otherwise, the concessions are free and clear of mortgages, encumbrances, prohibitions, injunctions and litigation.

 

Exploration licences are granted by the National Mining Agency (“ANM”) based on an improved plan for a period of one to three years, with an option to extend for an additional three years. Annual fees of R$3.29 per hectare are paid on the first term and R$5.00 per hectare are paid on the second term. Once the exploration plan is completed, the licensee must submit a final exploration report and if the report is approved, they have up to one year to apply for an extraction licence. Once ANM has approved the final report carried out under the exploration licence the applicant moves to an extraction licence application. The extraction licence describes the details of an economic analysis of the project including environmental impacts, methods of operation and a plan for mine closure. Once approved by the ANM, exploitation permits are granted. Royalties are then payable to the government on products mined.

 

Largo reports that, to its knowledge, there are no existing permitting, environmental liabilities or other significant factors that would affect title or access with respect to the Maracás Menchen Mine.

 

History

 

Over the past 30 years, the Maracás Project has undergone several phases of exploration and economic evaluation, including geophysical surveys, prospecting, trenching, diamond drilling programs, geological studies, resource estimates, petrographic studies, metallurgical studies, mining studies and economic analyses. These studies have advanced the Maracás Project to its present status of an operating mine.

 

Exploration of the Rio Jacaré Sill by geologists of the CBPM initiated in 1980 during a regional geological survey and resulted in the discovery of vanadium-rich titaniferous magnetite occurrences on what is now the Maracás Menchen Mine. Additional geological mapping, geochemistry, geochemical surveying, pitting, trenching and limited drilling was completed by CBPM.

 

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In 1984 the Bahia State Geological Survey (“CBPM”) formed a joint venture with the Odebrecht Group (“Odebrecht”) who took over exploration of the project area and over the subsequent six years completed extensive geological and technical work. This work resulted in Odebrecht owning 93% of the project. In the early 1990’s Odebrecht formed a 50/50 joint venture with CAEMI (Vale) with the intent of bringing additional mining, metallurgical and marketing expertise to help advance the project. Substantial work including diamond drilling, metallurgical studies, resource calculations and mine planning were carried out and numerous prefeasibility, feasibility and marketing studies were completed culminating in a 1999 Economic Update Report. In 2006, Largo (through Vanádio) signed an option agreement with Odebrecht and Vale for the Maracás Project giving Largo the right to acquire a 90% interest in the project. In 2012, largo exercised the option and acquired the interests of both Odebrecht and Vale resulting in Vanádio owing 99.94% of the Maracás Project. Since the acquisition Largo has completed additional detailed engineering work and began construction of the Maracás Menchen Mine in June 2012. The Maracás Menchen Mine was commissioned March 2014 and production has steadily increased from 5,810 t/a in 2015 to a record 10,577 t/a in 2019.

 

Geological Setting, Mineralization, and Deposit Types

 

The Rio Jacaré Sill (the “RJS”) is a mafic-ultramafic intrusion, which hosts the Maracás Project vanadium mineralization, is located in the south-central part of Bahia state in northeastern Brazil. It lies within the Archean São Francisco craton, which in this area is composed of the Contendas-Mirante Complex and the Gavião and Jequié blocks. The RJS is located on the eastern edge of the Contendas-Mirante supracrustal sequence, which forms a large anticlinorium trending approximately north-south. The supracrustal rocks are located between the early Archean Gavião block to the west, which is composed predominantly of tonalite-trondhjemite granodiorite, and the Archean Jequié block to the east, which is composed predominantly of charnockite and enderbite intrusive rocks with strong calc-alkaline affinities and granulite facies metamorphic rocks. The Contendas-Mirante sequence is thought to be younger than the adjacent Gavião and Jequié blocks and consists of an Archean basal volcanic unit overlain by a Paleoproterozoic member containing flysch and metavolcanic rocks that are overlain by a clastic member.

 

The RJS is composed mainly of gabbro. The intrusion has been described previously as a sill intruded into the volcanic rocks of the lower unit of the Contendas-Mirante gneissic complex. However, the RJS is fault bounded to the east and west, and therefore, its contacts with both the Contendas-Mirante sequence and Jequié block are tectonic.

 

The RJS is a linear, sheet-like structure that strikes N 20  E and dips approximately 70  to the east. The intrusion has been identified over a length of 70 km and has an average width of 1.2 km. The Campbell Pit contains the largest concentrations of vanadium-rich magnetite known on the property to date. This deposit crops out over an area of approximately 400 m along strike, up to 150 m width and is known to extend to approximately 350 m vertical depth, where it remains open. The Campbell Pit has been disrupted by northwest-southeast faulting. It is composed of magnetite grading into magnetite-rich pyroxenite, pyroxenite, and then gabbro which contains layers or lenses of magnetite-bearing pyroxenite that are sometimes sheared. The main magnetite body is on average about 25 m thick and thins to the south.

 

Within the Maracás Project the RJS can be traced for the full 8 km underlying the exploration permits north of the Campbell Pit.  Six known VTM deposits including the Campbell Pit, Gulçari A Norte and Gulçari B (collectively “GAN”), São José (“SJO”), Novo Amparo (“NAO”) and NAN, (collectively the “Near Mine Targets” or “NMT”, also referred to as ‘Satellite Deposites’ in the Technical Report) have been identified within the intrusion. The RJS can be traced a further +25 kilometers south of the Campbell Pit and Largo controls much of this area with additional exploration permits.

 

The NMT consist of magnetite closely associated with pyroxenite layers and hosted in gabbro. The magnetite layers have widths between <5 to+ 13 m and lengths of up to 250 m, with the layers being locally truncated or offset by faulting .

 

Sulphides account for up to 1% of the rock in the magnetite. The major phases are chalcopyrite and pentlandite with only very minor pyrite and pyrrhotite. High platinum and palladium (“PGM”) values have been found in the magnetite zones in the RJS. The association of PGM enrichment with magnetite layers in the RJS has similarities with the Rincón del Tigre, Skaergaard and Stella Complexes as well as the Bushveld Complex

 

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Exploration

 

Ongoing exploration is conducted on the Near Mine Targets with the primary goal of supporting mining activities and increasing estimated Mineral Resources and Mineral Reserves available for mining. All existing exploration information is being compiled into a comprehensive 3D model to allow for evaluation and prioritization of exploration efforts.

 

Beginning in 2007, Largo carried out significant geological work and interpretation over the project area. The entire property has been covered by 175 line-km of line cutting. The grid lines are 2.5 km long and oriented east-west with 100-m line spacing and 25-m stations along the lines. This line cutting work was done to facilitate geological mapping, sampling and ground geophysical surveys (magnetic and induced polarization). Geological mapping was done at a scale of 1:2,500 over the entire property concentrating on favourable areas that had a limited amount of information. This work was completed to get a better understanding of the area’s potential prior to conducting further drill testing.

 

Ground magnetic surveying (175 line -km) was completed over the entire property and total of 136 line-km of induced polarization surveying was completed on the property to help define magnetic horizons within the RJS. Geophysical surveys were important during the early of work to define targets for future drilling.

 

Data compilation, re-logging and additional resampling of previously drilled holes (1981 to 1986) were undertaken. This work was done to correlate the lithologies between holes and from section to section, and to test the platinum and palladium potential of the deposit to better understand the geological setting.

 

Exploration has resulted in significant opportunity to advance the Near Mine Targets to host Mineral Resource estimates in support of the overall mine complex and long-term mine planning.

 

Drilling

 

Mineral Resources and Reserves are estimated based on information from surface drill holes. Prior to Largo’s activity at the Maracás Project, previous operators had drilled 53 diamond drill holes (5,153 m) on the Campbell Pit, and 13 diamond drill holes (661 m) on targets within the overall mine property. Largo completed three exploration drill campaigns at the Maracás Project (2007, 2008 and 2011-2012) with 56 drill holes (14,525 m) directed at the Campbell Pit and 84 drill holes (15,058 meters) targeting other deposits within the mine property. Between September 2012 and January 2013, Largo completed an infill drill program consisting of 103 vertical drill holes (3,929.35 meters) at the Campbell Pit. The program was designed to further identify and delineate the first 2 to 3 years of mining at the Campbell Pit. Holes were spaced on 12.5 m centers and encompassed an area of about 300 m by 150 m.

 

For additional information on more recent drilling carried out on NAN see “Description of the Business — Exploration, Development and Production”.

 

Sampling, Analysis, and Data verification

 

Several periods of diamond drill by different operators have resulted in somewhat varying sampling procedures. The actual sampling method carried out by CBPM (1981 and 1983) is not known, but during visits to the core facility it was observed that the core had been carefully half cut with all holes available for inspection. Clearly marked sample intervals were evident in all core boxes and it was concluded that sampling had been carried out in a very professional manner.

 

Drill core sampling during the Odebrecht period was also completed to industry standards and half sawn core was carefully logged and sampled. Sampled core was secured and shipped via commercial trucks to the laboratory at SGS GEOSOL Laboratorios Ltda. (“SGS”) (1983-1987) and Paulo Abib Engenharia S.A. laboratory (1985 to 1987) both located in Belo Horizonte. In total, 1,675 core samples were analysed at SGS and Paulo Abib Engenharia. Samples were analysed for FeO, Fe2O3, SiO2, TiO2 and V2O5.

 

In 2006 and 2007, Largo undertook an extensive program of core relogging and sampling. Largo personnel collected quarter cut drill core samples which were then placed into sealed in plastic bags with corresponding sample tags. Samples were shipped via company truck to Salvador where they were handed over to a commercial trucking company

 

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for shipment to SGS in Belo Horizonte. Analytical quality control utilized by Largo included the insertion of blanks, referenced material samples and duplicates on a regular basis for all batches submitted for analysis. CBPM and Odebrecht sample pulps remain available to Largo.

 

All sample preparation and analysis of drill core from the 2006/2007 resampling program and all Largo directed drill programs were performed by SGS in Belo Horizonte, Brazil and Lakefield Ontario, Canada. During infill drilling at the Campbell Pit in 2012 both SGS in Belo Horizonte and Intertek in Cotia, Brazil were used for sample preparation and analysis. Samples were analysed for FeO, Fe2O3, SiO2, TiO2 and V2O5 by the XRF method and for platinum and palladium by 50 g fires assay at SGS. This was modified to a 20 g fire assay for the 2007 and later drill programs. SGS “complies with the requirements of the international standards ISO 9001:2000 and ISO 14001:2004 for chemical analysis and geochemistry of soils, rocks and ores” (SGS Minerals, 2006). Intertek also complies with ISO 9001:2008 for chemical analysis and geochemistry of soils, rocks and ores.

 

In 2015 Largo staff initiated Davis Tube test work to improve their understanding of vanadium in the ore at the Campbell Pit. This work was used to determine the magnetic percentage and the SiO2 and V2O5 grades in the magnetite concentrate. This work was completed by SGS. In total, 7,567 pulp samples collected from previous drill programs were analysed. A pulp duplicate, and one certified standard were inserted into every 40 sample batch.

 

Data verification work completed by Largo and Micon has led to confidence in the database compiled by the original owners of the property. Largo’s ongoing quality assurance and quality control program has also led to confidence in the newly generated data.

 

Mineral Processing and Metallurgical Testing

 

The original process design was based primarily on the metallurgical testwork performed by SGS in 2007, a study undertaken by IMS Processing plant in 1990, a feasibility study completed by Lurgi in 1986, a metallurgical study performed by Rautaruukki Oy Research Centre between 1987 and 1989, and the detailed technical study produced by Engenharia e Consultoria Mineral S.A. (ECM) in 1990. A list of metallurgical and process technical and economic references can be found in Section 13.2 of the Technical Report.

 

Testwork was undertaken by SGS between April and November 2007 to investigate the recovery of vanadium from the Maracás Project mineralization. This program included mineral processing investigations using magnetic separation to recover vanadium contained in magnetite and hydrometallurgical extraction using roasting, leaching, precipitation and calcining to produce an intermediate vanadium oxide product. Additional SGS testwork was undertaken in 2012 to investigate beneficiation recoveries and concentrate analyses for the additional ore-bodies included in the expanded plan presented in the Technical Report.

 

Pilot scale testing was undertaken by Largo in 2010 to test bulk samples of high grade and low grade ore with respect to recovery and leaching performance.

 

After completion of the Definitive Feasibility Study (“DFS”) in 2010, at the request of the financing bank’s technical consultant, a pilot scale program was initiated to prove the viability of producing V2O5 from the Maracás Project ore and to confirm the process data reported in the feasibility study. Test work was done at Fundação Gorceix and involved obtaining a sample of the Maracás Project ore, beneficiating the ore to produce a V2O5 concentrate and then roasting the concentrate in a kiln to convert vanadium into a soluble form.

 

The roasted concentrate was then leached in water to produce a vanadium solution that was further processed through de-silication and ammonium metavanadate (“AMV”) precipitation steps. The AMV thus produced was then analyzed and calcined at SGS to produce V2O5. The complete process route has been described in the DFS.

 

It was not possible with available facilities to pilot the production of V2O5 and Ferrovanadium from AMV. Since these are state of the art technologies utilized by major Ferrovanadium producers their exclusion from the pilot program was considered acceptable as long as the AMV produced was of acceptable quality.

 

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Mineral Resources and Mineral Reserve Estimates

 

On October 16, 2017 Largo disclosed Mineral Reserve and Mineral Resource estimates with an effective date of May 2, 2017 in a report titled Maracás Project, Bahia, Brazil, An Updated Mine Plan, Mineral Reserve and Preliminary Economic Assessment of the Inferred Resources, prepared by GE21 Consultoria Mineral.

 

The Mineral Resources for the Campbell Pit are estimated from drill core information stored in a secured central database and were evaluated using a geostatistical block modelling approach. A three-dimensional block model was generated to enable grade estimation. The selected block size was based on the geometry of the domain interpretation and the data configuration. The block size of 5 m E by 5 m N by 5 m RL was selected. The “percent” block modelling technique was used to represent the volume of the interpreted wireframe models. Sufficient variables were included in the block model construction to enable grade estimation and reporting.

 

Resource estimation for the Campbell Pit was undertaken using ordinary kriging (“OK”) as the principal estimation methodology for V2O5. The OK estimates were completed using Gemcom mining software. In 2016, Largo updated the Mineral Resource estimate for the Campbell Pit as a result of depletion of mined resources. This Measured and Indicated Resource was used to update the reserve and used for the new mine plan presented herein.

 

The new block model incorporates percent magnetics (percent of magnetic minerals in the mineralized rock) and magnetite concentrate grade for V2O5 and SiO2. No new drilling was available for the estimate; however, it was adjusted for mining completed to date. The updated Mineral Resources for Campbell are presented below:

 

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Campbell Mineral Resources - Maracás Project
Effective date: May 02nd 2017

 

Category

 

Tonnes 
(million)

 

V2O5 Head
Grade (%)

 

V2O5 Contained 
(kt)

 

V2O5 in 
Concentrate (%)

 

Magnetics (%)

 

Measured (M)

 

18.08

 

1.19

 

215.0

 

3.19

 

30.55

 

Indicated (I)

 

1.70

 

1.28

 

21.7

 

3.12

 

34.64

 

M&I

 

19.78

 

1.20

 

236.7

 

3.19

 

30.90

 

Inferred

 

1.65

 

1.20

 

19.8

 

3.10

 

33.08

 

 

Notes:

 

(1)                                 Mineral Resources within a pit shell using US$34.20/t all in operating cost and reported at a 0.45% V2O5 cut-off, reviewed and confirmed by Fabio Valério Xavier (GE21).

 

(2)                                 Mineral Resources are classified as Measured, Indicated and Inferred based on relative levels of confidence in their estimation and on technical and economic parameters consistent with the methods most suitable to their potential commercial exploitation.

 

(3)                                 The Measured and Indicated Resources listed in the table above are inclusive of Mineral Reserves.

 

(4)                                 The Mineral Resource and Mineral Reserve estimates are reported in accordance with the NI 43-101 and the Canadian Institute of Mining, Metallurgy and Petroleum Definition Standards on Mineral Resources and Reserves (CIM Definition Standards) as a minimum standard.

 

Mineral Reserves have been estimated for the Campbell Pit with an effective date of May 02, 2017. The mine plan developed in the Technical Report is based on Measured and Indicated Resources only as delineated in the table above. Reserves are reported using a sales price of US$6.34/lb of V2O5. The ultimate pit design and mine plan was done to optimize kiln feed. The open pit Mineral Reserve estimate is based on a mine plan and open pit designs developed using modifying parameters including metal prices, metal recovery based on performance of the processing plant, operating and sustaining capital cost estimates based on the production schedule and equipment requirements. Other factors including; dilution, mining recovery, shipping terms, geotechnical characteristics of the rock mass, and the likelihood of obtaining land title, required permits environmental, social and legal licenses may affect the final Mineral Resources and Reserves, see “Risk Factors”.

 

The Mineral Reserves presented below were estimated by Porfírio Cabaleiro Rodriguez of GE21, who is a qualified person under NI 43-101 and a Member of the Australian Institute of Geoscientists.

 

Campbell Mineral Reserves - Maracás Project
Block dimensions 5x5x5 (m) - Mine Recovery 100% and Dilution 5%
Effective Date: May 02, 2017

 

Reserve Category

 

Tonnage (kt)

 

% V2O5 Head

 

% Magnetics

 

%V2O5 con

 

V2O5
Contained (kt)

 

Proven

 

17,570

 

1.14

 

29.66

 

3.21

 

167.3

 

Probable

 

1,440

 

1.26

 

33.89

 

3.20

 

15.6

 

Total in pit Reserve

 

19,010

 

1.15

 

29.98

 

3.21

 

182.9

 

 

Notes:

 

(1)                                 A Probable Mineral Reserve is the economically mineable part of an Indicated Mineral Resource, and in some circumstances, Measured Mineral Resource.

 

(2)                                 A Proven Mineral Reserve is, in most common circumstances, the economically mineable part of a Measured Mineral Resource.

 

(3)                                 Mineral Reserves are included in Measured and Indicated Resources.

 

(4)                                 The reference point at which Mineral Reserves are defined is the point where the ore is delivered from the open pit to the crushing plant.

 

(5)                                 The Mineral Resource and Mineral Reserve estimates are reported in accordance with the NI 43-101 and the CIM Definition Standards on Mineral Resources and Reserves (CIM Definition Standards) as a minimum standard.

 

Largo completed a revised block model and updated Mineral Resource estimate for the Near Mine Targets incorporating the drilling from the 2011 program including 72 holes totalling 13,401 m. The Near Mine Targets which extend north from Gulçari A for eight kilometers include from south to north: Gulçari A Norte, Gulçari B, São José, Novo Amparo and NAN. All are hosted in the RJS.

 

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The Near Mine Targets Mineral Resources below are based only on drilling to the end of 2012.  Additional exploration work commencing in 2018 is set out under the heading “Description of the Business — Exploration, Development and Production” below.  The Mineral Resources for the Near Mine Targets in the table below are considered current with the exception of the NAN deposit as described below.

 

Near Mine Targets Mineral Resources
Effective date: May 02, 2017

 

Deposits

 

Category

 

tonnes (kt)

 

V2O5 (%)

 

Contained V2O5
(tonnes)

 

Gulçari A Norte**

 

Inferred

 

9,730

 

0.84

 

81,388

 

Gulçari B**

 

Inferred

 

2,910

 

0.70

 

20,312

 

Novo Amparo**

 

Inferred

 

1,560

 

0.72

 

11,255

 

Novo Amparo Norte**

 

Inferred

 

9,720

 

0.87

 

84,453

 

Sao Jose**

 

Inferred

 

3,900

 

0.89

 

34,706

 

Near Mine Targets (Total)**

 

Inferred

 

27,820

 

0.83

 

232,114

 

 

** Resource within a pit shell using $US34.20/t all in operating cost and reported at a 0.45% V2O5 cut-off, reviewed and confirmed by Porfirio Cabaleiro Rodriguez (GE 21).

 

Mining Operations

 

The completion of the Expansion of the Maracás Menchen Mine in December 2019 increased our production to 10,577 t in 2019, with a new name plate capacity of 11,750 — 12,250 t anticipated in 2020. Currently Largo has a mining fleet which consists of four hydraulic excavators equipped with a 3.5-5 m3 bucket and a total of 28 Mercedes Benz 36-tonne capacity trucks. The contract drilling fleet consists of six Sandvik Ranger DX800 rotary drill rigs. A fleet of ancillary equipment is also available for mine maintenance and eventual plant services.

 

In 2019 mining operations at the Campbell Pit moved 1.15 million tonnes of ore 7.01 million tonnes of waste. The overall life of mine (“LOM”) show total mining of 19.73 million tonnes ore and stockpile and 60.21 million tonnes of waste for an overall strip ratio of 3.14. LOM average head grade of V2O5 of 0.96% and 76% global recovery. As of May 2, 2017, the effective date of the Technical Report, the LOM was estimated at 11 years.

 

Processing and Recovery Operations

 

The Maracás Menchen Mine vanadium recovery plant was commissioned in 2014 and has been in start-up mode for much of that time ramping up to near design capacity. At the time of writing the Technical Report, the plant produces up to 800 t/month, equivalent to a production rate of 9,600 t/a of V2O5.

 

The current process flow sheet comprises the following: three stages of crushing, one stage of grinding, two stages of magnetic separation, magnetic concentrate roasting, vanadium leaching, ammonium meta-vanadate (AMV) precipitation, AMV filtration, AMV calcining, and fusing to V2O5 flake as final product. A simplified process flow diagram for the production of V2O5 is presented in the Technical Report.

 

Originally sized to process 960,000 t/a run of mine the plant will be capable, after due modification, to process 1,900,000 t/a of feed ore with an average grade of 0.9% V2O5, 79% global recovery, and produce 13,200 t/a V2O5 by 2020. The plant is designed to operate 365 days per year, 7 days/week, 24 hours/day with an on-stream factor of 87%.

 

In 2019, global recovery from ore of V2O5 reached 78.5%.

 

Capital and Operating Costs

 

All capital expenditures are treated as sustaining capital expenditures for purposes of the Technical Report and the related cash flow analysis, and was estimated for the whole Maracás Project at US$71 million. The expansion project, which was completed in 2019, accounted for US$21 million and increased production capacity to 1,000 t/month. In 2020,

 

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Largo anticipates completing feed rate improvements on the kiln which is expected to increase nameplate production capacity to 1,100 t/month. The cost of the kiln feed rate improvements are anticipated at approximately US$1.3 million.

 

A constant value of US$3 million per year was provided for plant maintenance and spare parts, and an additional US$2 million in plant improvement projects.

 

Additional sustaining capex of US$1.5 million was estimated for mine drainage, US$4.3 million was estimated for exploration, and US$8.8 million for non-magnetic dams and chloride ponds.

 

Operating and administrative costs are based on real costs that are regularly incurred by Largo and are summarized below:

 

Average Operating Cost Summary

 

Operating Cost

 

US$

 

Mining (US$/t earth moving)

 

2.45

 

Processing (US$/lb V2O5)

 

1.78

 

General and Admin (US$/lb V2O5)

 

0.18

 

Royalties (CBPM, owner, CFEM, AP) (US$/lb V2O5)

 

0.34

 

 

Exploration, Development, and Production

 

In 2018 exploration activities at the Campbell Pit included a close spaced diamond drilling program of 31 holes (2,323 meters) designed to give greater detail to the ore body and help to guide mine production over the next two to three years. This program began in the middle of April 2018 and was completed on May 30, 2018. The data was modelled and used for mine planning and development purposes. Consultants from GE21 assisted in the modelling.

 

Phase II included a 4,950 metre drilling program focused on upgrading and expanding the NMT and along strike high priority targets. Drilling began on June 4, 2018 with two rigs focused at NAN and the Company completed 24 holes totalling 4,223 metres prior to December 31, 2018. This included 13 infill and 11 step out holes. On December 19, 2018, the Company announced that this program had expanded the mineralization to the north and south at NAN, defining targeted mineralisation over a strike length of 1.84 kilometers. Infill drilling was designed to upgrade the resource category at NAN.

 

Additionally, seven holes were drilled on targets south of the Campbell pit. The drill program was completed on October 23, 2018.

 

Previous drilling at NAN completed by the Company from 2011 to 2012 outlined a consistent zone of mineralisation over 790 meters with an average width of 18 meters and an average grade of 0.87% V2O5. The 2018 program was successful in extending mineralisation both to the north and south along strike by approximately 130% to approximately 1,840 meters.  The deposit remains open to the south and to depth.

 

The Company extended the Phase II definition drilling program at NAN in the first quarter of 2019.  Diamond drilling was initiated at NAN on January 15, 2019. In total, 47 diamond drill holes (5,404 metres) were completed. The work focused on increasing confidence in the resource categories and extending mineralisation at depth and along strike.  This program was completed mid-February 2019. The exploration program resulted in the conversion of Inferred Mineral Resources to Measured and Indicated categories, in addition to increasing the overall Inferred Mineral Resources. On June 11, 2019, the Company reported a new resource estimate for NAN on 12,912 metres (88 drill holes) of drilling with an effective date of May 31, 2019.

 

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Novo Amparo Norte Mineral Resource Estimate
Effective date: May 31, 2019

 

Category

 

Tonnes (mt)

 

Head Grade
V2O5 (%)

 

Magnetite (%)

 

Magnetic 
Concentrate
V2O5 (%)

 

Contained V2O5
Magnetic 
Concentrate
(tonnes)

 

Measured

 

6.25

 

0.91

 

33.1

 

2.32

 

48,046

 

Indicated

 

5.98

 

0.85

 

28.1

 

2.50

 

41,996

 

Total M & I

 

12.23

 

0.88

 

30.7

 

2.41

 

90,042

 

Inferred

 

11.33

 

0.90

 

31.2

 

2.46

 

86,960

 

 

Notes:

 

(1)                                 Mineral Resources have been classified using the Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”), CIM Standards on Mineral Resources and Reserves, Definitions and Guidelines prepared by the CIM Standing Committee on Reserve Definitions and adopted by the CIM Council.

 

(2)                                 Mineral Resources which are not Mineral Reserves do not have demonstrated economic viability.  The Inferred Mineral Resource in this estimate has a lower level of confidence than that applied to the Measured and Indicated Mineral Resource.  It is reasonably expected that a portion of the Inferred Mineral Resource could be upgraded to an Indicated Mineral Resource with continued exploration.

 

(3)                                 Magnetite content is determined by Davis Tube Test methodology.  V2O5 content of the magnetite concentrate was determined by XRF79C methodology at the SGS facility in Belo Horizonte, Brazil.

 

(4)                                 Cut-off grade for this calculation was 0.45% V2O5 head grade.

 

(5)                                 Numbers may not add up exactly due to rounding.

 

Exploration work shifted to the Novo Amparo (NAO) deposit where 4,646 metres (24 drill holes) of drilling were completed. Drilling was also undertaken at the São José (SJO) deposit where 2,813 metres (18 drill holes) of drilling were completed.  Further drilling was carried out on the Gulçari A Norte and Gulçari B (now considered one target known as Gulçari A Norte or “GAN”) where 21 drill holes (3,501 m) were completed.  Drilling on all targets focused on extending and upgrading known mineralisation as defined in the 2017 Technical Report.  The Company also completed 1,177 metres of drilling (three holes) near the Campbell Pit to explore for target horizons down dip and along strike of the current reserve area.  South of the Campbell Pit, 16 diamond drill holes (2,313 m) were completed on the Gulçari A South (GAS) target.

 

Based on extensive drill programs in 2018 and 2019, relogging of holes from old drilling campaigns, geological mapping and geophysical signatures, the RJS was interpreted as similar to tube/funnel transition “Eagle/Kalatonke Type” mafic to ultramafic layered intrusion, a pathway stagnated magmatic chamber with periodical injections of magma denominated as magmatic cycles.  Cycles are divided according to the phase stratification of the mineral magnetite. Processes such as fractional crystallization and magma mixing are highlighted as the main drivers to changes in parameters as pressure and oxygen fugacity, which provided for the formation of known mineralisation.

 

In total, 10 magmatic cycles have been identified in RJS, in response to successive magma inputs in an open system (cycle C1 to cycle C10). Cycles C1 to C3 appear to be restricted to the Campbell Pit, where more robust layers of magnetite and ultramafic rocks were formed.  These layers are currently being mined in the Gulçari A (Campbell Pit) deposit. Cycles C4 to C10 have been defined to the north and south beyond Campbell Pit, with successive layers of magnetite associated with mafic rocks such as magnetite-gabbros, gabbros to anorthosites. These layers give rise to the deposits called NMT in the RJS. This genetic model also explains the higher levels of vanadium in the Gulçari A deposit, associated with more primitive magmas richer in vanadium metal.

 

Largo engaged ALS Global Brazil for all drilling and sampling preparation and analytical services.

 

Plans for surface exploration over the Maracás Project area includes an estimated 23,500 meters of diamond drilling, significant analytical and Davis Tube test costs, resource modelling, metallurgical testing and additional ground geophysical surveying to further identify and/or define additional targets for diamond drilling and resource studies. The total forecast exploration expenditure for 2020 is R$13.4 million ($4.5 million).

 

Specialized Skill and Knowledge

 

All aspects of the business of the Company require specialized skill and knowledge. Such skill and knowledge include the areas of geology, drilling, logistical planning, engineering, construction, mine operations, metallurgical processing, environmental compliance and accounting. The Company employs or retains a number of technical personnel with relevant experience, education and professional designations, and constantly evaluates the need for additional employees and or consultants with particular expertise.

 

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Competitive Conditions

 

The mineral exploration and mining business is a competitive business. The Company competes with numerous companies that have resources significantly in excess of the resources of the Company, in the search for (i) attractive mineral properties; (ii) qualified service providers and labour; (iii) equipment and suppliers; and (iv) purchasers for minerals produced. The pricing that the Company will receive for V2O5 produced from its projects will be based on global prices and, ultimately, factors that are significantly out of its control. The ability of the Company to acquire additional mineral properties in the future will depend on its ability to develop and operate its present properties, and also on its ability to select and acquire suitable producing properties or prospects for mineral development or exploration. See “Risk Factors — Risks Related to the Business and Operations”.

 

Environmental Protection and Licensing and Permits

 

The current and future operations of the Company, including development and mining activities, are subject to extensive federal, provincial and local laws and regulations governing environmental protection, employee health and safety, exploration, development, tenure, production, taxes, labour standards, occupational health, wastes disposal, greenhouse gas emissions, protection and remediation of environment, reclamation, mine safety, toxic substances and other matters. Compliance with such laws and regulations increases the costs of and delays planning, designing, drilling and developing the Company’s properties. The Company is subject to various reclamation-related conditions imposed under federal or provincial rules and permits in connection with its development and exploration. See “Risk Factors”

 

Environmental licences associated with a mining project in Brazil involve the issuance of the relevant licences by a multidisciplinary technical review team appointed by the State Council for Environmental Matters (“CEPRAM”) to review the project. This review team sets terms of reference for the environmental impact assessment (“EIA”) and the Relatório de Impacto Ambiental (“RIMA”). The RIMA summarizes the full impact assessment so that it can be reviewed by the public. See “Risk Factors — Risks Released to Brazil”.

 

Marketing and Distribution

 

Global supply of vanadium is relatively concentrated and is not readily sold on global marketplaces. Benchmark prices are generally based on the London Metal Bulletin however, due to the supply and demand characteristics of vanadium, pricing is often difficult to ascertain and is subject to wide fluctuations, see “Risk Factors — Risks Related to the Business and Operations — Our business is highly dependent upon the price of vanadium”. Global demand for vanadium is not as robust as compared to other minerals and so the marketing of vanadium products and the identification of key consumers and markets is critical to the distribution and sale of vanadium.

 

During 2019, the price of vanadium ranged from US$17.75 to US$4.45 per pound and, as at March 13, 2020, the range posted by London Metal Bulletin was US$4.80 to US$5.50 per pound. Significant price increase in 2018 created supply and demand shocks that converged in 2019. Since reaching a bottom in Q4, 2019, price recovery in Q1, 2020 has been tempered by fears of a global economic slowdown from the COVID-19 pandemic, see “Risk Factors — Risks Related to the Business and Operations”.

 

In September 2019, the Company gave notice to Glencore International AG that it will terminate the Offtake Agreement with Glencore effective April 30, 2020. Until its effective termination, we have agreed to sell in U.S. dollars to Glencore, and Glencore agreed to acquire, 100% of the V2O5 production at the Maracás Menchen Mine. We have executed amendments to the Offtake Agreement which, among other things, allow us to participate with Glencore on a 50:50 basis in the upside from selling VPURE+ Flake and VPURE+ Powder into specialty markets in the event that a premium is achieved on such sales. See “Risk Factors — Risks Related to the Business and Operations”.

 

Following the termination of the Offtake Agreement, the Company will be responsible for the marketing and distribution of all of our vanadium production including VPURE Flake, VPURE+ Flake and VPURE+ Powder, and assuming completion of the Ferrovanadium Conversion Plant, ferrovanadium powder. In connection with the non-renewal of the Offtake Agreement, Largo Ireland hired Mr. Vollant and Largo USA hired Mr. D’Alesssio to lead the build out of the Company’s global sales capacity through Largo Ireland and Largo USA, respectively, for all vanadium products. Mr. Vollant is Director

 

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of Sales and Trading and is tasked with leading the development of the Company’s sales and trading with a focus on the global vanadium market. Mr. Francesco D’Alessio is Head of Sales, Americas and is tasked with expanding sales in North and South America.

 

The vanadium sales cycle commences in Q4 of the year preceding coincident with the main industry conferences in Europe and the United States. The Company intends to commit the majority of its anticipated annual vanadium production to annual sales contracts with remaining vanadium production being committed to spot sales. Accordingly, to date, the Company has commitments close to 90%of its 2020 vanadium production that will remain following the termination of its commitments to Glencore International AG pursuant to the Offtake Agreement.

 

Maracás Menchen Mine

 

The terms of reference for the Maracás Menchen Mine EIA/RIMA included a social impact, alternatives, and archaeological assessment, in addition to the basic physical and biological environmental impact assessment. Generally, the following licences are issued by CEPRAM in order to bring a mine into production in the State of Bahia:

 

·                  localization license (“LL”)

 

·                  installation license (“LI”)

 

·                  preliminary operating license (“LPO”)

 

·                  operating license (“LO”)

 

Issuance of the LL allows the rest of the licensing process to proceed and the EIA and RIMA are completed during this process. The LL involves the participation of the public and any non-government organization who wish to participate through public meetings. For the Maracás Menchen Mine, the Instituto do Meio Ambiente (“IMA”), the Bahia state environmental agency, hosted these meetings in February 2009 in Maracás and Porto Alegre, which are two towns located in the vicinity of the project site. Following this, IMA submitted the project to CEPRAM who at their April 2009 monthly meeting endorsed IMA’s recommendation that the LL be granted. The LL is a very critical step in the environmental permitting process and concludes the active participation of the public.

 

The LI involves an approval process involving only Largo and the government agencies noted above. The process includes the submission of more detailed information regarding the project and a detailed description of the proposed environmental management system that was outlined in the LL documentation previously submitted.

 

The LO is granted during the final stages of commissioning and involves a site inspection by IMA, with the likely participation of CEPRAM, to confirm that the project has been constructed as planned and in accordance with the LI. For the Maracás Menchen Mine, Largo received its LL and LI, respectively, on May 13, 2009 and October 20, 2011. In May of 2014, Largo was granted its LPO for the Maracás Menchen Mine. The LPO is issued following completion of commissioning and prior to issuance of the LO for the project. The Company received the LO for the Maracás Menchen Mine in November 2014 which indicates that the plant was built, and was operating, according to its design specifications and environmental guidelines. The LO is valid for 2 years at which time it may be renewed for extension within 6 months of the LO’s expiry date for an additional 2-5 years. The LO was last renewed in October 2018.

 

Employees

 

The Company and its material subsidiary have approximately 379 persons on staff, working full time as either employees or on a consulting basis, and have also retained a service provider in Brazil who deploys approximately 537 additional persons. The Company also retains geologists, engineers, and other consultants on a contract basis as required. The Company has not experienced, and does not expect to experience, significant difficulty in attracting and retaining qualified personnel. However, no assurance can be given that a sufficient number of qualified employees can be retained by the Company when necessary. See “Risk Factors — Risks Related to the Business and Operations”.

 

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Foreign Operations

 

At present, the Company’s operating facilities are all located in Brazil. Consequently, the Company is at the date of this AIF dependent on its foreign operations. See “Risk Factors — Risks Related to Brazil”.

 

RISK FACTORS

 

Investing in the Company involves risks that should be carefully considered. The operations of the Company are speculative due to the high-risk nature of its business. Investors should be aware that there are various risks, including those discussed below, that could have a material adverse effect on, among other things, the development of the Maracás Menchen Mine, and the operating results, earnings, business and condition (financial or otherwise) of the Company. See “Cautionary Note Regarding Forward-Looking Information” at the beginning of this AIF.

 

Risks Related to the Business and Operations

 

Our business is highly dependent upon the price of V2O5.

 

Our financial performance is highly dependent on the market price of V2O5, which accounted for 100% of our gross revenue in 2019. Mineral prices, including prices for V2O5, fluctuate widely and are affected by numerous factors beyond the control of the Company. The level of global economic activity, interest rates, speculative activities, supply and demand balances and the stability of exchange rates can all cause significant fluctuations in prices. Such external economic factors are in turn influenced by changes in international investment patterns, monetary systems, and political developments. The price of mineral commodities, including V2O5, has fluctuated widely in recent years, and future price declines could cause commercial production to be commercially unattractive, thereby having a material adverse effect on the Company’s business, financial condition and result of operations.

 

The London Metal Bulletin price for V2O5 was trading in the range of US$4.80 and US$5.85 per pound V2O5 on December 31, 2019, compared to US$15.00 to US$16.00 per pound V2O5 on December 28, 2018, and US$9.60 to US$9.90 per pound on December 29, 2017. Factors that are generally understood to contribute to variations in the price of V2O5 include changes in global steel production levels, changes in the specific V2O5 consumption rate in the steel industry, production availability and inventories. Future volatility in V2O5 price will have a material effect on the Company’s revenues, profitability and reserves.

 

The price of V2O5 , as reported by London Metal Bulletin, decreased materially in 2019 from a high of US$17.38 per pound V2O5 in the first quarter of the year to a low of US$4.73 per pound V2O5 in the fourth quarter of 2019. This decrease is due in part to increased supply of V2O5 following the price peaks at the end of 2018 and a reduction in demand in part by global battery consumption and production. Since the end of 2019, price recovery in Q1, 2020 has been tempered by fears of a global economic slowdown from the COVID-19 pandemic and, as of March 13, 2020, the London Metal Bulletin price ranged from US$4.80 to US$5.50 per pound of V2O5.

 

Our capital and operating cost estimates may prove inaccurate and, consequently, lead to unanticipated costs or capital expenditures, which could affect our financial condition and results of operations.

 

Capital and operating cost estimates made by our management are estimates which are in turn based on, among other things, our interpretation of geological data, feasibility studies, anticipated climatic conditions and other information. Any or all of these can affect the accuracy of the estimates including: (i) unanticipated changes in grade and tonnage to be mined and processed; (ii) incorrect data on which engineering assumptions are made; (iii) unanticipated transportation costs; (iv) accuracy of equipment and construction cost estimates; (v) difficulty or failure to meet scheduled construction completion dates, facility or equipment commissioning dates, or metal production dates; (vi) poor or unsatisfactory construction quality resulting in failure to meet completion, commissioning or production dates; (vii) increased expenditures required as a failure to meet completion, commissioning or production dates; (viii) capital overruns related to the completion of any construction phase including capital overruns associated with demobilization of construction workers and contractors; (ix) labour negotiations; (x) unanticipated costs relating to the commencement of operations, ramp up and production sustainment; (xi) changes in government regulation (including regulations

 

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regarding prices, cost of consumables, royalties, duties, taxes, permitting and restrictions on production quotas or exportation of our products); (xii) change in commodity input costs and quantities; and (xiii) communication issues including familiarity with language, between domestic and foreign employees, contractors, advisors, agents and government officials. If any of our estimates of capital and operating costs or capital expenditures are materially inaccurate, it could have a material adverse effect on our business, results of operations and financial condition.

 

We may not be able to generate enough revenue to achieve sustained profitability, in particular as we are a single asset operation.

 

As of the date of this AIF, the Company has recorded revenues from only one project, the Maracás Menchen Mine. There can be no assurance that losses (including significant losses) will not occur in the near future or that the Company will be profitable in the future. The Company’s operating expenses and capital expenditures may increase in subsequent years for consultants, personnel and equipment associated with advancing exploration, development and commercial production of other properties by the Company. The Company’s costs of sales may also increase as the Company transitions from the Offtake Agreement to developing its own sales and trading capabilities. The development of other properties by the Company will require the commitment of substantial resources to conduct time-consuming development. There can be no assurance that the Company will generate revenues from other projects or achieve profitability.

 

Our 2019 audited annual consolidated financial statements were prepared on a going concern basis, which assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. As of December 31, 2019, the Company had an accumulated deficit of approximately $64.1 million, and had a net working capital surplus of $102.0 million. Total amounts due within 12 months on the Company’s long term debt are $nil. Although the Company has been successful in the past in obtaining financing there is no assurance that it will be able to obtain adequate financing in the future or that such financing will be on terms advantageous to the Company.

 

Substantially all of our revenues are derived from the sales of vanadium products produced at the Maracás Menchen Mine. This lack of diversification of our business could adversely affect our financial condition, results of operations and cash flows.

 

We rely on the V2O5 production from the Maracás Menchen Mine for all of our revenues. For the year ended December 31, 2019, revenues from the sales of vanadium products accounted for 100% of our total revenues. As noted above, demand for V2O5 mainly depends on global demand for steel. As one of the few producers of high purity V2O5 globally, demand from the aerospace and chemical industries are also essential to Largo and enables it to achieve premiums over the standard market prices for steel applications. At times, the pricing and availability of steel can be volatile due to numerous factors beyond our control. Since we are heavily dependent on the steelmaking industry, adverse economic conditions in that industry, even in the presence of otherwise favorable economic conditions in the broader vanadium mining industry, could have a significantly greater impact on our results of operations and financial condition than if our business were more diversified. In addition, our lack of diversification may make us more susceptible to such adverse economic conditions than our competitors with more diversified operations and/or asset portfolios.

 

Effective April 30, 2020, the Company’s Offtake Agreement with Glencore International AG will terminate. We may not be able to generate sufficient revenue from sales of vanadium products.

 

The Company has given notice to Glencore International AG of the nonrenewal of its Offtake Agreement. The Offtake Agreement will terminate in accordance with its terms, and the notice of termination given thereunder, effective April 30, 2020. During the existence of the Offtake Agreement the Company has relied, and will continue to rely until its effective termination, on the Offtake Agreement for 100% of the sales of vanadium products produced in our Maracás Menchen Mine. The final financial settlement under the Offtake Agreement may exceed the termination of the Offtake Agreement by several months and we anticipate a significant payment adjustment owing to Glencore International AG. Under the Offtake Agreement, during an up-market we are unable to explore other commercial and distribution possibilities and from taking advantage of potential opportunities to benefit from increased global demand for high-purity V2O5 products which may command higher prices at the spot market than the prices set by the Offtake Agreement. Effective September 

 

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2019, Mr. Paul Vollant has joined Largo Ireland as Director of Sales and Trading to lead the development of our global sales and trading business unit, and effective October 21, 2019, Mr. Francesco D’Alessio joined Largo USA as Head of Sales, Americas to lead sales in North and South American markets. See also “General Development of the Business — Three Year History — Operations”, and “Description of the Business — Marketing and Distribution”.

 

The Offtake Agreement provided certainty of sales as the agreement required our offtake partner to purchase 100% of the V2O5 produced in our Maracás Menchen Mine. There can be no assurance that we will be able to sell 100% of our production capacity, generate sufficient revenue from sales or achieve profitability.

 

Our ability to successfully develop and implement our sales and trading business is inherently subject to a number of risks and uncertainties and will require the commitment of substantial resources of both management and capital. In particular, material risks and uncertainties in connection with these developments include, without limitation:

 

·                  the initial capital costs required to develop and support the sales department and product storage facilities;

 

·                  the difficulties and costs associated with building out a channel of sales networks;

 

·                  the ability to attract, train, and retain qualified sales personnel;

 

·                  the ability to develop and advance new relationships with end customers and with distribution partners;

 

·                  the ability to manage inventory, and fulfill orders;

 

·                  third party transportation risks;

 

·                  increased exposure to global currency fluctuations;

 

·                  the impact of customs duties and tariffs;

 

·                  end-customer demand may not meet expectations; and

 

·                  the Company may produce more vanadium products than it is capable of settling.

 

There can be no assurance that the Company will be able to complete the build-out of its sales and trading unit prior to the effective termination of the Offtake Agreement, or at all.

 

See also “Risk Factors — Risks Related to the Business and Operations — Our business is highly dependent upon the price of V2O5”.

 

Global events outside of the Company’s control, such as the COVID-19 pandemic, may adversely affect demand for our products, our ability to maintain operations and our financial results.

 

The international outbreak of the respiratory illness COVID-19 (also referred to as the ‘coronavirus’) and efforts to contain it may have a significant effect on both Chinese and global commodity demand and prices, and may also impact third parties’ ability to meet their obligations to the Company and the Company’s ability to meet its obligations to its customers.

 

COVID-19, or any other contagious diseases or public health threats in the human population, could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect demand for the Company’s products and negatively impact our operating results and financial performance.

 

Global pandemics and other public health threats (like COVID-19), or a fear thereof, could adversely impact our production operations, sales efforts, expansion projects, lead to labour shortages, and severely impact supply chain logistics including travel and shipping disruptions and shutdowns (including as a result of government regulation and prevention measures) affecting delivery of the raw materials we need to operate and delivery of our products to customers, among others. It is unknown whether and how the Company may be affected if such an occurrence persists for an extended period of time but we anticipate that it would have a material adverse effect on our business, operating results and financial performance. In addition, the Company may also be required to incur additional expenses and/or delays relating to such events which could have a further negative impact on our business, operating results and financial performance.

 

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Failure to achieve production targets or cost estimates could adversely affect our sales, profitability, cash flows and financial performance.

 

The Company prepares future operating and capital cost estimates with respect to existing operations. Actual production and costs may vary from the estimates for a variety of reasons such as estimates of grade, tonnage, dilution and metallurgical and other characteristics of the ore varying from the actual ore mined, revisions to mine plans, risks and hazards associated with mining, adverse weather conditions, unexpected labour shortages or strikes, equipment failures and other interruptions in production capabilities. Operating costs may also be affected by increased mining costs, variations in predicted grades of the deposits, increases in level of ore impurities, labour costs, raw material costs, inflation and fluctuations in currency exchange rates. Failure to achieve production targets or cost estimates could have a material adverse impact on the Company’s sales, profitability, cash flow and overall financial performance.

 

Our business requires substantial capital expenditures to achieve its operational and strategic objectives and is subject to financing risks.

 

The mining business is capital intensive and the development and exploitation of vanadium reserves and the acquisition of machinery and equipment require substantial capital expenditure. We have a number of plans for our existing operations, which could involve significant capital expenditure. In particular, we must continue to invest significantly to maintain or to increase the amount of reserves that we exploit and the amount of V2O5 that we produce. Some of our development projects and prospects may require greater investment than currently planned. In addition, our ability to continue our exploration, exploitation, development and operational activities will depend ultimately on our ability to generate cash flows and secure financing as required. There can be no assurance that we will be able to maintain our production levels and generate sufficient cash flow, or that we will have access to sufficient investments, loans or other financing alternatives, to continue our development and processing activities at or above present levels and failure to do so, could result in delays.

 

Our controlling shareholders have the ability to determine the outcome of corporate actions or decisions, and its interests may conflict with those of our other shareholders.

 

The ARC Funds are capable of controlling the direction of the Company through the right to nominate three of the six persons for election as directors of the Company, who will be subject to the vote of the shareholders. Unilateral control over a majority of the persons nominated for election as directors of the Company will enable the ARC Funds to determine the persons responsible for managing the direction of the Company. The ARC Funds directly own approximately 43.96% of our outstanding Common Shares as of the date of this AIF and therefore have the ability to determine the outcome of most corporate actions or decisions requiring the approval of our shareholders. The interests of our controlling shareholder may conflict with those of our other shareholders.

 

We are subject to comprehensive environmental regulations. Compliance with environmental regulations and procurement of the necessary environmental permits to operate may result in significant costs, and failure to comply with environmental regulations may result in significant environmental liabilities.

 

Our operation in Brazil is subject to stringent Brazilian federal, state and local environmental laws and regulations concerning human health, the handling and disposal of solid and hazardous wastes and discharges of pollutants into the air and water.

 

Any failure to comply with such laws and regulations may subject the Company to penalties, including warnings, payment of fines, embargo and suspension of activities, which may cause a significant adverse effect on the Company. We have incurred and we will continue to incur capital expenses in order to continue to comply with these laws and regulations. In addition, such laws and regulations are subject to change and can become more stringent, making our compliance efforts more costly.

 

In addition, Brazilian companies whose activities are deemed as potentially polluting activity may be subject to an environmental licensing process. Such environmental licensing process has three sequential stages:

 

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·                  Preliminary License (“LP”): The LP is granted in the preliminary planning phase of a project or activity and it approves the location and the environmental impact assessment of a project, attesting to its environmental feasibility and determining the basic requirements and conditions to be observed in the subsequent permitting stages;

 

·                  Installation License (“LI”): The LI is granted so that a project or activity can be installed or constructed, in accordance with the specifications presented and subject to further conditions so as to mitigate and compensate any negative impacts;

 

·                  Operational License (“LO”): The LO is granted for a project or activity to commence the operational phase subject to further conditions.

 

In the State of Bahia, where our Maracás Menchen Mine operates, the environmental licensing process is under the responsibility of INEMA.

 

Such process takes into consideration the nature and size of a project as well as the impacts and the characteristics of the ecosystem affected by the installation and operation of a project, based on the information provided by the Environmental Impact Assessment and Report (“EIA/RIMA”). The EIA/RIMA is a comprehensive study that includes analysis of the environmental, social and economic impact of the project.

 

Currently, the Maracás Menchen mine is fully licensed. The current Operation License (LO) - which is the main license for the company’s operation, is valid until October 6th, 2020. Any failure to obtain the future renewal of the existing license or to obtain any necessary license, the permission or approval required for the development of our activities, may have a material adverse effect on our business, operation results and financial condition.

 

Our project in Canada is also subject to extensive Canadian laws and regulations relating to pollution, protection of the environment and the generation, storage, handling, transportation, treatment, disposal and remediation of hazardous substances and waste materials. Costs and capital expenditures relating to environmental, health or safety matters are subject to evolving regulatory requirements and depend on the promulgation and enforcement of specific standards which impose applicable requirements. Moreover, changes in environmental regulations could inhibit or interrupt our operations, or require modifications to our facilities. Accordingly, environmental, health or safety regulatory matters may result in significant unanticipated costs or liabilities.

 

We are subject to risks posed by litigation, arbitration and other disputes under binding agreements with various third parties.

 

The Company has entered into legally binding agreements with various third parties under supply contracts and consulting agreements. The interpretation of the rights and obligations that arise from such agreements may be open to differing interpretations and the Company may disagree with the position taken by other parties to these agreements. This could result in a dispute which, if unresolved, might trigger a litigation or arbitration process, causing the Company to incur possible legal or similar costs in the future. Given the speculative and unpredictable nature of litigation or the arbitration process, final outcomes in such disputes may have material adverse effects on the Company.

 

The mining business is subject to a number of risks and hazards, not all of which are fully covered by insurance.

 

The mining business is subject to risks and hazards, many of which are outside our control. Hazards associated with mining operations include environmental hazards, industrial accidents, encountering unusual or unexpected geological deposits, cave ins or landslides, flooding, earthquakes, underground fires and explosions, including those caused by flammable gas, gas and coal outbursts, falling rocks, tunnel collapses, lack of oxygen, air pollution, discharges of tailings, hazardous substances and materials, gases and toxic chemicals, sinkhole formations and ground subsidence, other accidents and conditions resulting from underground mining, such as drilling, blasting, removing and processing material. These occurrences could result in damage to, or destruction of, mineral properties or production facilities, human exposure to pollution, personal injury or death, environmental damage, reduced production and delays in mining, asset write downs, reputational damage, monetary losses and possible legal liability.

 

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Although we maintain insurance in an amount we consider adequate, liabilities might exceed policy limits, which could cause us to incur significant costs that could materially and adversely affect our results of operations. Insurance that fully covers many environmental risks (including potential liability for pollution or other hazards as a result of disposal of waste products occurring from exploration and production) is not generally available to us or to other companies in the mining industry, particularly in Brazil following the Samarco dam collapse in 2015. The realization of any significant liabilities in connection with our mining activities as described above could have a material adverse effect on our results of operations or financial condition.

 

Our business is exposed to the cyclicality of global economic activity and requires significant investments of capital.

 

As a mining company, we are a supplier of industrial raw materials. Industrial production tends to be the most cyclical and volatile component of global economic activity, which affects demand for minerals and metals. At the same time, investment in mining requires a substantial amount of funds in order to replenish reserves, expand and maintain production capacity, build infrastructure, preserve the environment and minimize social impacts. Sensitivity to industrial production, together with the need for significant long term capital investments, are important sources of risk for our financial performance and growth prospects.

 

Developments in China could have a negative impact on our revenues, cash flows and results of operations.

 

The Chinese market is a significant source of global demand for commodities and has been the main driver of global demand for V2O5 over the last few years. In Q3 2019, Chinese demand represented approximately 58% of global demand for V2O5. Therefore, any contraction of China’s economic growth that is not offset by reduced supply or increased demand from other regions, could result in lower demand for our products, leading to lower prices and lower revenues, cash flow and results of operations. Poor performance in the Chinese real estate sector, a significant consumer of steel in China, would also negatively impact our results. Conversely, China was also responsible for approximately 63% of global V2O5 production in 2019. Favorable economic conditions could increase supply beyond demand and depress pricing, which would also negatively impact our results.

 

Our business may be adversely affected by declines in demand for and prices of the products our customers produce.

 

Demand for V2O5 depends on global demand for steel. Vanadium is used in the steel industry in the production of HSLA steels, high alloy steels, high speed and tool steels, and engineering steels. Demand for steel depends heavily on global economic conditions, but it also depends on a variety of regional and sectoral factors. The prices of different steels and the performance of the global steel industry are highly cyclical and volatile, and these business cycles in the steel industry affect demand and prices for our products.

 

We may not be able to obtain additional financing on acceptable terms, or at all.

 

Future exploration, development, mining, and processing of minerals from our properties could require substantial additional financing. No assurances can be given that we will be able to raise the additional funding that may be required for such activities, should such funding not be fully generated from operations. To meet such funding requirements, we may be required to undertake additional equity financing, which would be dilutive to shareholders. Debt financing, if available, may involve certain restrictions on operating activities or other financings. There is no assurance that such equity or debt financing will be available to us or that they would be obtained on terms favorable to us, if at all, which may adversely affect our business and financial position. Failure to obtain sufficient financing may result in delaying or indefinite postponement of exploration, development or production on any or all of our properties, or even a loss of property interests.

 

Our industry is highly competitive, and increased competition could adversely affect our margins and market share.

 

The global mining industry is highly competitive. Our existing and potential competitors include some of the world’s largest mining companies and the Company competes with many other mining companies that have substantially greater resources than the Company. We currently face, or may face in the future, competition from other producers of V2O5 globally. Some of these companies may be able to produce at a lower cost than we can. For example, some of our

 

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domestic and international competitors may benefit from tax breaks and may be able to better compete against us. In addition, some of our competitors are larger than us and may have greater financial and technical resources, which may enable them to invest significant capital into their businesses, including expenditures for research and development. Such competition may result in the Company being unable to acquire desired properties, recruit or retain qualified employees or acquire the capital necessary to fund its operations and develop its properties. If a current or future competitor develops proprietary technology that enables it to produce at a significantly lower cost, our technology could be rendered uneconomical or obsolete. Increased competition could compel us to reduce the prices of our products, which could result in reduced margins and loss of market share and have a material adverse effect on us.

 

We also face competition from other processing, trading and industrial companies. Competition principally involves sales, supply and labour prices, contractual terms and conditions, attracting and retaining qualified personnel and securing the services and supplies we need for our operations. For example, lower cost producers of V2O5 could be better positioned to manage future volatility through commodity price cycles. In addition, mines have limited lives and, as a result, we must periodically seek to replace and expand our reserves by acquiring new properties and by developing projects. Significant competition exists to acquire mining concessions, land and related assets with potential mineralization. Some other mining companies may have greater financial resources than us, and we may be unable to acquire attractive new mining properties on terms that we consider acceptable. As a result, our revenues from the sales of vanadium products may decline over time, thereby materially and adversely affecting our results of operations or financial condition.

 

Potential changes to international trade regulations and agreements, as well as other political and economic arrangements (including direct or indirect subsidies) may benefit V2O5 producers or traders operating in countries other than where our mining operations are currently located or adversely affect the prices we pay for the supplies we need and our export costs when we engage in international transactions. We cannot assure you that we will be able to compete on the basis of price or other factors with companies that in the future may benefit from favorable regulations, trading or other arrangements or that we will be able to maintain the cost of the supplies we require or our export costs. The Company’s inability to compete with other mining companies for these resources would have a material adverse effect on the Company’s results of operation and business.

 

We are dependent on third parties for development, construction and operations.

 

The Company has relied upon external consultants, engineers and others and intends to rely on these parties for, among other things, the development, construction and operating expertise. Substantial expenditures are required to construct mines, to establish Mineral Reserves through drilling, to carry out environmental and social impact assessments, to develop metallurgical processes to extract the metal from the ore and, in the case of new properties, to develop the exploration and plant infrastructure at any particular site. In addition, the Company relies on a service provider who deploys approximately 537 contractors for our mining, administration, maintenance and other operations. If such parties’ work is deficient or negligent or is not completed in a timely manner, it could have a material adverse effect on the Company.

 

Interruptions of energy supply or increases in energy costs and other production costs may materially and adversely affect our results of operations.

 

We obtain the necessary electric power for the operation of our equipment and facilities from third parties through electricity supply contracts. In the event of any interruption or failure of our sources of electricity or in transmission lines or in any part of the grid, we cannot assure you that we will have access to other energy sources at the same prices and conditions, which could materially and adversely affect our results of operations and have a material adverse effect on our business, financial condition and result of operations.

 

The availability of energy resources may be subject to change or curtailment, due to, among other things, new laws or regulations, imposition of new taxes or tariffs, supply interruptions, equipment damage, worldwide price levels and market conditions. Disruptions in energy supply could have a material adverse effect on our financial condition and results of operations.

 

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Our operations depend on rail, port, marine, shipping or other transportation services provided by third parties.

 

Operation of our facilities, existing and future, will depend in part on the flow of materials, supplies, equipment, services and products. Due to the geographic location of the Company’s operations, existing and future, it remains and will remain dependent on the provision by third parties of rail, port, marine, shipping or other transportation services. Potential issues including contractual disputes, demurrage charges, port or depot capacity handling issues, availability of vessels, rail cars or other modes of cargo transport, weather problems, force majeure and labour disruptions could have a material adverse effect on the Company’s ability to transport various materials necessary for the operation of its facilities in accordance with schedules or contractual requirements. This might result in a material adverse effect on the Company’s business, results of operations and financial performance.

 

Our concessions may be terminated or not renewed by governmental authorities.

 

Under the laws of the jurisdictions where our operations, development projects and prospects are located, Mineral Resources belong to the state and government concessions are required to explore for and exploit Mineral Reserves. The concessions we hold for our operations may be terminated under certain circumstances, including where minimum investment or production levels are not achieved (or a corresponding penalty is not paid), if certain fees are not paid or if environmental and safety standards are not met. Termination of any one or more of our mining or other concessions could have a material adverse effect on our financial condition or results of operations.

 

There are risks inherent with obtaining and maintaining title to properties.

 

The acquisition and maintenance of titles to resource properties is a very detailed and time-consuming process. The Company holds its interests in certain of its properties through mining claims. Title to, and the area of, the mining claims may be disputed. There is no guarantee that such title will not be challenged or impaired. There may be challenges to the title of the properties in which the Company may have an interest which, if successful, could result in the loss or reduction of the Company’s interest in those properties.

 

Although the nature and extent of the interests of the Company in the properties in which it holds an interest has been reviewed by or on behalf of the Company, and title opinions have been obtained by the Company with regard to certain of such properties, there may still be undetected title defects affecting such properties. Title insurance generally is not available in Canada or Brazil, and the ability of the Company to ensure that it has obtained secure claim to individual mineral properties or mining concessions may be constrained.

 

The properties in which the Company holds an interest may be subject to prior unregistered liens, agreements, transfers or claims, and title may be affected by, among other things, the structure through which the Company maintains its interest in its properties and undetected defects which could have a material adverse impact on the Company’s operations. In addition, the Company may be unable to, effectively (if at all), conduct business at or operate on its properties as permitted or to enforce its rights with respect to those properties.

 

No assurances can be given that title defects to the properties in which the Company has an interest do not exist. The properties may be subject to prior unregistered agreements, interests or aboriginal land claims and title may be affected by undetected defects. If title defects do exist, it is possible that the Company may lose all or a portion of its right, title, estate and interest in and to the properties to which the title defect relates. There is no guarantee that title to the properties will not be challenged or impugned.

 

The Company does not maintain insurance against title. Title on mineral properties and mining rights involves certain inherent risks due to the difficulties of determining the validity of certain claims as well as the potential for problems arising from the frequently ambiguous conveyance history of many mining properties. The Company has investigated title to its mineral claims; however, this should not be construed as a guarantee of title. The Company cannot give any assurance that title to any of its properties will not be challenged or impugned and cannot guarantee that the Company will have or acquire valid title to these mining properties. For example, title to existing properties or future prospective properties may be lost due to an omission in the claim of title, prior activities of the property vendors or changes in Brazilian mining laws or the application thereof which affects the Company’s title or the Company’s rights and interests

 

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in its properties. The Company has obtained title reports from Canadian and Brazilian legal counsel with respect to its interest, respectively, in its Canadian and Brazilian properties, but this should not be construed as a guarantee of title or the Company’s rights to these claims. Other parties may dispute the title of the Company or the joint venture to any of its mineral properties and any of such properties may be subject to prior unregistered agreements or transfers or aboriginal land claims and title may be affected by undetected encumbrances or defects or governmental actions.

 

There are risks inherent with our corporate structure.

 

Vanádio, the material Brazilian subsidiary of the Company which holds a 100% interest in the Company’s Maracás Menchen Mine, is a limited liability company, and as such does not require a Board and is controlled by its shareholders. The management of the Company has control over Vanádio by virtue of owning 99.94% of the shares of Vanádio. Therefore, the management of the Company can effectively (i) appoint and dismiss at any time any and all of the officers of Vanádio, (ii) instruct the officers of Vanádio to pursue the Company’s business activities, (iii) has legal rights as a shareholder to require the officers of Vanádio to comply with their fiduciary obligations, and (iv) can also enforce its rights by way of the shareholder remedies available to it. As a result, the management of the Company can effectively align the Issuer’s business objectives and effect the implementation of same at the level of Vanádio.

 

The Company, as the holder of a 99.94% interest in Vanádio, can remove and appoint officers by way of simple communication that such officer is being removed from his/her position and the subsequent filing of same with the Board of Trade. The Board, through its corporate governance practices and, in particular, the activities of its board committees, regularly receives management and technical updates and progress reports in connection with Vanádio. In so doing, the Board maintains effective oversight of the operations and project development activities of Vanádio.

 

The Board has the ability to exert effective control over Vanádio as discussed herein. Accordingly, the Board will be able to cause Vanádio to transfer funds and accomplish the various operating aspects of the business when Vanádio is generating revenues.

 

Certain of the directors and officers of the Company have extensive experience doing business in both Canada and Brazil. In particular, Paulo Misk, Alberto Arias and Daniel Tellechea are the directors of the Company that have experience in conducting business in Brazil and Les Ford (former Senior Vice President and Technical Director of Brazilian Operations and currently consultant to the Company) is an individual with experience in conducting business in Brazil. Moreover, Alberto Arias is fluent in Portuguese.

 

Knowledge of the local business, culture and practices is imparted by these individuals to other directors and officers of the Company, furthermore, several of the non-resident directors and officers visit Brazil on a regular basis in order to ensure effective control and management of the operations and as a result come into contact with other employees, personnel, government officials, business persons and customers who are locals in Brazil. This enables them to enhance their knowledge on these fronts. Paulo Misk, formerly the Chief Operating Officer of the Company and now Chief Executive Officer of the Company, is resident in Brazil and travels to the mine site regularly.

 

All directors and executive officers of the Company have some familiarity with the legal and regulatory requirements of Brazil. Brazilian legal counsel (both internal at Vanádio and external) and Brazilian management ensure that the Company’s management is kept aware of relevant material legal developments in Brazil as they pertain to and affect the Company’s business and operations. Any material developments are then discussed with the directors at the board level.

 

Other than as discussed herein, the Company does not currently have a formal communication plan or policy in place and has not, to date, experienced any communication-related issues due to the fact that the management team located in Brazil is proficient in the English language.

 

The Company will, from time to time, re-evaluate whether a formal communication policy is necessary. The Company hires and engages local experts and professionals (i.e. legal and tax consultants) to advise the Company with respect to current and new regulations in respect of banking, financial and tax matters. The Company utilizes large, established and well recognized financial institutions in both Canada and Brazil. Directors visit the Company’s operations in Brazil several times per year and have regular board meetings by telephone which include the Company’s Chief Executive Officer and

 

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Chief Financial Officer and other relevant Vanádio officers and managers. The Company arranges for site visits to its projects as deemed appropriate. The Company hosted one site visit for members of the Board of Directors in 2019 and two in 2018 and in 2017. The operations committee of the Board of Directors held two site visits in 2019.

 

The directors and officers also work closely with Brazilian counsel and Brazilian employees of the Company and its subsidiaries to understand and subsequently adjust firm strategies and practices relating to changes in Brazilian laws and regulatory regimes.

 

Each member of the management team located in Brazil speaks fluent Portuguese and all are proficient in English. Paulo Misk, Chief Executive Officer, and Luciano Chaves, Vice President of Finance and Administration in Brazil, Álvaro Resende, Production Director are each fluent in Portuguese and English.

 

Alberto Arias is a director and non-executive Chairman of the Company who is fluent in English and Portuguese. The primary language used in management and board meetings is English. The management team located in Brazil dealing with the operating staff and outside consultants communicate in Portuguese with such individuals as necessary. Both Vanádio and the Company have translators on staff to assist with all communication requirements, as needed.

 

Material documents relating to the Company that are provided to the board are in English. When original material documents are prepared in Portuguese, these are typically translated by the Company’s Brazilian legal counsel, who are fluent in English and Portuguese. When required, the Company will sometimes use third party translation services.

 

We depend on key personnel and any inability to recruit and retain key personnel may adversely affect our business.

 

Recruiting and retaining qualified personnel in the future is critical to the Company’s success. The number of persons skilled in the exploration and development of mining properties is limited and competition for this workforce is intense. Any expansion of the Company’s properties may be significantly delayed or otherwise adversely affected if the Company cannot recruit and retain qualified personnel as and when required.

 

Our success also depends, in large measure, on the skills, experience and efforts of our senior management team and other key personnel. The loss of the services of one or more members of our senior management or of employees with critical skills may have a negative effect on our business, financial condition and results of operations. We may experience difficulty in attracting and retaining the skilled employees we may require to replace lost employees or grow our business. If we are unable to attract or retain highly skilled, talented and committed senior managers or other key employees, it may adversely affect our ability to fully implement our business objectives.

 

Our directors and officers may from time to time have a conflict of interest.

 

Certain of the Company’s directors and officers serve or may agree to serve as directors or officers of other companies and, to the extent that such other companies may participate in ventures in which the Company may participate, the directors of the Company may have a conflict of interest in negotiating and concluding terms respecting such participation.

 

We are subject to anti-corruption, anti-bribery, anti-money laundering, sanctions and antitrust laws and regulations.

 

We are subject to anti-corruption, anti-bribery, anti-money laundering, sanctions, antitrust and other similar laws and regulations. We are required to comply with the applicable laws and regulations of Brazil and Canada, and we may become subject to such laws and regulations in other jurisdictions. There can be no assurance that our internal policies and procedures will be sufficient to prevent or detect any inappropriate practices, fraud or violations of law by our affiliates, employees, officers, executives, partners, agents, suppliers and service providers, nor that any such persons will not take actions in violation of our policies and procedures. Any violations by us or any of our affiliates, employees, directors, officers, partners, agents, suppliers and service providers of anti-bribery and anti-corruption laws or sanctions regulations could have a material adverse effect on our business, reputation, results of operations and financial condition.

 

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Labour disputes may disrupt our operations from time to time.

 

A substantial number of our employees, and some of the employees of our subcontractors, are represented by labour unions and are covered by collective bargaining or other labour agreements, which are subject to periodic negotiation. Strikes and other labour disruptions at any of our operations could adversely affect the operation of facilities and the timing of completion and cost of our capital projects. Moreover, we could be adversely affected by labour disruptions involving unrelated parties that may provide us with goods or services. In May, 2018, production at our Maracás Menchen Mine was suspended for four days due to a national truckers’ strike in Brazil which was settled on May 30, 2018.

 

Our business is subject to environmental, health and safety incidents.

 

Our operations involve the use, handling, storage, discharge and disposal of hazardous substances into the environment and the use of natural resources, and the mining industry is generally subject to significant risks and hazards, including fire, explosion, toxic gas leaks, spilling of polluting substances or other hazardous materials, rockfalls, incidents involving dams, failure of other operational structures and incidents involving mobile equipment, vehicles or machinery. This could occur by accident or by breach of operating and maintenance standards, and could result in a significant environmental and social impacts, damage to or destruction of mineral properties or production facilities, personal injury, illness or death of employees, contractors or community members close to operations, environmental damage, delays in production, monetary losses and possible legal liability. Additionally, in remote localities, our employees may not have access to timely emergency medical care which may affect their health and safety. Notwithstanding our standards, policies and controls, our operations remain subject to incidents or accidents that could adversely affect our business, stakeholders or reputation.

 

Under Brazilian law, any individual or legal entity (whether public or private) that directly or indirectly causes harm to the quality of the environment may be held liable for the recovery, remediation or compensation of the damages that were generated, without regard to whether there is a direct or indirect connection between their act (or omission) and the damage caused to the environment. There are three types of liabilities that may be applied cumulatively: (i) civil, (ii) administrative and (iii) criminal.

 

Civil liability for environmental damages is strict, requiring that the responsible parties remediate the damage in full or pay compensation when remediation is not possible. Civil liability also applies jointly and severally to those who facilitate, benefit from and contribute to the occurrence of environmental damage. As a result, the party bringing the environmental claim may freely choose whom to sue.

 

There is no limit to the amount that Brazilian courts may award to cover the costs of repairing the damage. If the damage cannot be repaired, Brazilian courts may order the payment of an indemnity. Environmental civil liability is not subject to a statute of limitations under Brazilian law.

 

With respect to criminal liability, Federal Law 9,605/98 provides that the legal entity and its individual representatives whose criminal actions were taken for the benefit of such entity can be held liable for criminal offences against the environment. In the case of the liability of the individual representatives, there needs to be some element of willful misconduct. In the case of the legal entity, a strict liability rationale applies: the legal entity can be charged regardless of the implication of any other individual representatives if it is confirmed that willful misconduct was undertaken for the benefit of the legal entity and by a decision of its representatives. Criminal sanctions applicable to legal entities include fines, the partial or total suspension of activities and embargos, prohibitions on contracting with governmental entities, as well as on obtaining subsidies, grants or donations, for a maximum period of 10 years.

 

Administrative liability arises from any action or omission in violation of the Federal Decree No. 6,514/2008, which sets out the administrative environmental infractions and the corresponding penalties, setting fines amounting to a maximum of R$50 million, as well as suspension of activities. Such liability can be pursued against the legal entity or the individual person that may incur any such infraction.

 

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We rely on various operating and financial systems and data which may expose us to cyber security threats.

 

The Company and its operations rely on various operating and financial systems and data. Cybersecurity risk is increasingly difficult to identify and quantify and cannot be fully mitigated because of the rapidly evolving nature of the threats, targets and consequences. A breach of the Company’s information or operational technology systems may result in disruption of business activities, loss of confidential or proprietary data, failure of internal controls over financial reporting, failure to meet obligations and reputational damage. Such a breach may also expose the Company to legal and regulatory action. Policies and procedures are maintained to ensure the security of its information technology systems, and data and system security controls are regularly tested. The Company also relies on third-party service providers for the storage and processing of various data. There can be no assurance, however, that the Company will not suffer a business disruption or loss or corruption of proprietary data, whether inadvertent or otherwise.

 

Enforcement of civil claims against the Company in Canada may be difficult as the majority of our assets are located outside of Canada.

 

The majority of our subsidiaries and the majority of our assets are located outside of Canada. Accordingly, it may be difficult for investors to enforce within Canada any judgments obtained against the Company, including judgments predicated upon the civil liability provisions of applicable Canadian securities laws or otherwise. Consequently, investors may be effectively prevented from pursuing remedies against the Company under Canadian securities laws or otherwise.

 

The Company has subsidiaries incorporated in the United States, Brazil and Ireland. It may not be possible for shareholders to effect service of process outside of Canada against the directors and officers of the Company, and independent qualified persons engaged by the Company, who are not resident in Canada. In the event a judgment is obtained in a Canadian court against one or more of such persons for violations of Canadian securities laws or otherwise, it may not be possible to enforce such judgment against persons not resident in Canada. Additionally, it may be difficult for an investor, or any other person or entity, to assert Canadian securities law or other claims in original actions instituted in the United States, Brazil or Ireland. Courts in these jurisdictions may refuse to hear a claim based on a violation of Canadian securities laws or otherwise on the grounds that such jurisdiction is not the most appropriate forum to bring such a claim. Even if a foreign court agrees to hear a claim, it may determine that the local law, and not Canadian law, is applicable to the claim. If Canadian law is found to be applicable, the content of applicable Canadian law must be proven as a fact, which can be a time-consuming and costly process. Certain matters of procedure will also be governed by foreign law.

 

Risks Related to Our Industry

 

The vanadium market is small and highly concentrated and therefore susceptible to swings in the availability of supply.

 

Most of the world’s supply of V2O5 is derived from mined ore, either directly as mineral concentrates derived from VTM or from steelmaking slags, where the steel was produced from VTM. A significant majority (approximately 91%) of the world’s V2O5 comes from four source countries: China, South Africa, Russia and Brazil. While Canada, Germany, Japan, and the United States, as well as several other European countries, continue to recover V2O5 from petroleum residues, the market is currently very small and highly concentrated.

 

Any collusion or concerted action between the major producers in China, South Africa and/or Russia could impact the availability of supply which could in turn have a negative impact on the price of V2O5.

 

Demand for V2O5 is highly dependent on demand for steel.

 

The steel industry accounts for approximately 91% of global total V2O5 consumption. HSLA carbon steels account for more than half of global V2O5 consumption. HSLA steels are a class of relatively new steel alloys which use small amounts of vanadium, niobium, titanium or some combination of these microalloying elements to impart higher strength and fine grains structure in the steel. Special steels including tool steels, high speed steels and special alloy steels account for close to one third of global V2O5 consumption. Vanadium is also used in the production of titanium alloys for aerospace,

 

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industrial and consumer applications. It is used as a catalyst in oxidation reactions and in pollution control systems. Other applications include pigments, corrosion inhibitors and other minor chemical processes.

 

While new markets for V2O5 may arise in the future, for example, a market in energy storage applications, a significant majority of V2O5 is currently being used in connection with the steel industry, in particular HSLA carbon steels and special steels. Any fall in demand and/or production for HSLA carbon steels and special steels could impact industry demand for V2O5 and, in turn, have a negative impact on the price of V2O5

 

Mineral Resource and Mineral Reserve estimates may be inaccurate. Our actual Mineral Reserves could be lower than such estimates, which could adversely affect our operating results, financial condition, cash flows and the life of our mine.

 

There are numerous uncertainties inherent in estimating Mineral Resources and Mineral Reserves, including many factors beyond the control of the Company. The accuracy of any Mineral Resource or Mineral Reserve estimate is a function of the quantity and quality of available data and of the assumptions made and judgments used in engineering and geological interpretation. These amounts are estimates only and the actual level of mineral recovery from such deposits may be different. Undue reliance should not be placed on estimates of Mineral Resources and Mineral Reserves, since these estimates are subject to numerous uncertainties. Differences between management’s assumptions, including economic assumptions such as metal prices and market conditions, could have a material adverse effect on the Company’s financial position, cash flows, results of operations and the life of our mine.

 

Our reported Mineral Reserves are estimated quantities of V2O5 that we have determined can be economically mined and processed under present and assumed future conditions. There are numerous uncertainties inherent in estimating quantities of reserves and in projecting potential future rates of mineral production, including factors beyond our control. Reserve reporting involves estimating deposits of minerals that cannot be measured in an exact manner, and the accuracy of any reserve estimate is a function of the quality of available data, engineering and geological interpretation and judgment. As a result, no assurance can be given that the indicated amount of V2O5 will be recovered or that it will be recovered at the rates we anticipate. Reserve estimates and estimates of mine life may require revisions based on actual production experience, projects, updated exploration drilling data and other factors. For example, lower market prices of minerals and metals, reduced recovery rates or increased operating and capital costs due to inflation, exchange rates, changes in regulatory requirements or other factors may render proven and probable reserves uneconomic to exploit and may ultimately result in a reduction of reserves. Such a reduction could affect depreciation and amortization rates and have an adverse effect on our financial performance.

 

We may not be able to replenish our reserves, which could adversely affect our mining prospects.

 

We engage in mineral exploration, which is highly uncertain in nature, involves many risks and frequently is non-productive. Our exploration programs, which involve significant expenditures, may fail to result in the expansion or replacement of reserves depleted by current production. If we do not develop new reserves, we will not be able to sustain our current level of production beyond the remaining lives of our existing mines.

 

We face rising extraction costs or investment requirements over time as reserves deplete.

 

Reserves are gradually depleted in the ordinary course of a given open pit or underground mining operation. As mining progresses, distances to the primary crusher and to waste deposits become longer, pits become steeper, mines may move from being open pit to underground, and underground operations become deeper. In addition, for some types of reserves, mineralization grade decreases and hardness increases at greater depths. As a result, over time, we may experience rising unit extraction costs with respect to our mine, or we may need to make additional investments, including adaptation or construction of processing plants and expansion or construction of tailings dams. Our mine may experience rising extraction costs per unit in the future.

 

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Nature of mining operations, mineral exploration and development projects and mining businesses generally involve a high degree of risk.

 

Mining operations generally involve a high degree of risk. The Company’s operations and those of its subsidiaries are subject to the hazards and risks normally encountered in mineral exploration, development and production, including environmental hazards, explosions, unusual or unexpected geological formations or pressures and periodic interruptions in both production and transportation due to inclement or hazardous weather conditions. Such risks could result in damage to, or destruction of, mineral properties or producing facilities, personal injury, environmental damage, delays in mining, monetary losses and possible legal liability.

 

Development projects have no operating history upon which to base estimates of future cash operating costs. For development projects, resource and reserve estimates and estimates of cash operating costs are, to a large extent, based upon the interpretation of geological data obtained from drill holes and other sampling techniques, and feasibility studies, which derive estimates of cash operating costs based upon anticipated tonnage and grades of ore to be mined and processed, ground conditions, the configuration of the ore body, expected recovery rates of minerals from the ore, estimated operating costs, anticipated climatic conditions and other factors. As a result, actual production, cash operating costs and economic returns could differ significantly from those estimated. Indeed, current market conditions are forcing many mining operations to increase capital and operating cost estimates. It is not unusual for new mining operations to experience problems during the start-up phase, and delays in the commencement of production can often occur.

 

Mineral exploration is highly speculative in nature. There is no assurance that exploration efforts will be successful. Even when mineralization is discovered, it may take several years until production is possible, during which time the economic feasibility of production may change. Substantial expenditures are required to establish proven and probable Mineral Reserves through drilling. Because of these uncertainties, no assurance can be given that exploration programs will result in the establishment or expansion of Mineral Resources or Mineral Reserves. There is no certainty that the expenditures made by the Company towards the search and evaluation of mineral deposits will result in discoveries or development of commercial quantities of ore.

 

Risks Related to Brazil

 

The Brazilian government has historically exercised, and continues to exercise, significant influence over the Brazilian economy. Brazilian political and economic conditions may adversely affect us.

 

In 2019, 100% of our revenue was derived from our operations in Brazil. Accordingly, our business, financial condition, results of operations and cash flows depend, to a considerable extent, upon economic and political conditions in Brazil.

 

Political and economic conditions directly affect our business and can result in a material adverse effect on us. Macroeconomic policies imposed by the Brazilian government can have significant impact on Brazilian companies or companies with significant operations in Brazil, including us.

 

The Brazilian economy has been characterized by frequent and occasionally significant intervention by the Brazilian government and unstable economic cycles. The Brazilian government has often changed monetary, taxation, credit and other policies to influence the course of Brazil’s economy. The Brazilian government’s actions to control inflation have at times involved setting wage and price controls, blocking access to bank accounts, imposing exchange controls, capital inflow and outflow controls and limiting imports and exports.

 

We cannot control or predict whether the current Brazilian government will implement changes to existing policies or the impact such changes may have on our operations in Brazil and, consequently, our business. Our business, operating results and financial condition and prospects, as well as the market price of our securities, may be adversely affected by changes in Brazil’s public policies, whether federal, state or local, that affect, without limitation:

 

·                  inflation;

 

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·                  fluctuations in exchange rates;

 

·                  exchange controls and restrictions on remittances abroad, such as those imposed in 1989 and early 1990;

 

·                  interest rates and monetary policies;

 

·                  import and export controls;

 

·                  liquidity of domestic capital, credit and financial markets;

 

·                  expansion or contraction of the Brazilian economy, as measured by rates of growth in gross domestic product, or GDP;

·                  fiscal policies; and

 

·                  other political, social and economic developments in or affecting Brazil.

 

Government policies and measures to combat inflation, along with public speculation about such policies and measures, have often had adverse effects on the Brazilian economy, contributed to economic uncertainty in Brazil and increased volatility in the Brazilian securities markets. The Brazilian government’s actions to control inflation have often involved price and salary controls, currency devaluations, capital limitations, limits on imports and other actions.

 

Other policies and measures adopted by the Brazilian government, including interest rate adjustments, intervention in the currency markets or actions to adjust or fix the value of the real may adversely affect the Brazilian economy, our business and results of operations.

 

Uncertainty over whether the Brazilian federal government will implement reforms or changes in policy or regulation affecting these or other factors in the future may affect economic performance and contribute to economic uncertainty in Brazil, which may in turn have adverse effects on our operations in Brazil and consequently on the results of our operations. Recent economic and political instability has led to a negative perception of the Brazilian economy and higher volatility in the Brazilian securities markets.

 

Operation Lava Jato or similar investigations and political instability resulting therefrom may adversely affect our business and results of operations. Additionally, such investigations may result in reputational risks.

 

Brazil’s political environment has historically influenced, and continues to influence, the performance of the country’s economy. Political crises have affected and continue to affect investor confidence and that of the general public, which resulted in economic deceleration and heightened volatility in the securities issued by Brazilian companies or of companies with significant operations in Brazil.

 

Brazilian markets have been experiencing heightened volatility due to the uncertainties derived from the ongoing Lava Jato investigation, which is being conducted by the Office of the Brazilian Federal Prosecutor, and its impact on the Brazilian economy and political environment. Certain members of the Brazilian federal government and of the legislative branch, as well as senior officers of large state-owned companies, are facing allegations of political corruption for officials allegedly accepting bribes by means of kickbacks on contracts granted by the government to several infrastructure, oil and gas, and construction companies, among other sectors. Profits of these kickbacks allegedly financed the political campaigns of political parties of the previous federal government coalition that were unaccounted for or not publicly disclosed, as well as served to personally enrich the recipients of bribery schemes. As a result, a number of senior politicians, including congressmen and officers of major private and state-owned companies in Brazil, resigned or have been arrested, and certain senior elected officials and other public officials are being investigated for allegations of unethical and illegal conduct identified during the Lava Jato investigation. There can be no assurance that any person, directly or indirectly connected to us, such as employees, statutory executive officers, members of the board of directors, suppliers, services providers or sub-contractors, is not or will not be implicated in the Lava Jato operation or similar investigations that may adversely affect our image and reputation.

 

The potential outcome of the investigations related to the Lava Jato operation is uncertain, but they have already had an adverse impact on the image and reputation of the implicated companies, and on the general market perception of the Brazilian economy. We cannot predict whether the allegations will lead to further political and economic instability or whether new allegations against government officials or other companies will arise in the future. In addition, we cannot

 

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predict the outcome of any such allegations nor their effect on the Brazilian economy. The development of the cases could adversely affect us.

 

Changes in tax laws, tax incentives and benefits, or differing interpretations of tax laws, may adversely affect our results of operations.

 

The Brazilian tax authorities have frequently implemented changes to tax regimes that may affect the Company and ultimately the demand of the Company’s customers for the products the Company sells. These measures include changes in prevailing tax rates and enactment of taxes, both temporary and permanent. Most recently, effective June 1, 2018, the Brazilian government reduced the Reintegra tax credit available to exporters from 2% to 0.1% in order to offset tax cuts that it had implemented on diesel fuel in a proposal to end a truck driver’s strike in June 2018. While this reduction does not materially affect the Company, it is demonstrative of the Brazilian Government’s ability to quickly make changes to Brazilian laws.

 

Some of these changes may increase the Company’s tax burden, which may increase the prices the Company charges for the products the Company sells, restrict the Company’s ability to do business in the Company’s existing markets and, therefore, materially adversely affect the Company’s results of operations. There can be no assurance that the Company will be able to maintain the Company’s projected cash flows and results of operations following any increases in Brazilian taxes that apply to us and the Company’s operations.

 

In addition, the Company currently receives certain tax benefits. There can be no assurance that these benefits will be maintained or renewed. Also, given the current Brazilian political and economic environment, there can be no assurance that the tax benefits the Company receives will not be judicially challenged as unconstitutional. If the Company is unable to renew the Company’s tax benefits, such benefits may be modified, limited, suspended, or revoked, which may adversely affect us.

 

Moreover, certain tax laws may be subject to controversial interpretation by tax authorities. In the event that tax authorities interpret tax laws in a manner that is inconsistent with the Company’s interpretations, the Company may be adversely affected.

 

During the 2018 presidential campaign there were discussions with respect to the revocation of income tax exemptions over payment of dividends, which currently exists in Brazil. Although it is not possible to determine whether the newly elected president and the new members of Congress will pass legislation to this effect, it is possible that the revocation of such exemption and other reforms in Brazil’s tax system will be discussed and eventually implemented by the new government.

 

Our operations are exposed to political, economic, and policy risks relating to operating in Brazil.

 

The Company’s principal properties are located in Brazil. As in any foreign country, mineral exploration and mining activities may be affected to varying degrees by changes in political, social and financial stability, and inflation. Any shifts in political, social or financial stability conditions are beyond the control of the Company and may adversely affect the Company’s business. Brazil’s status as a developing country may make it more difficult for the Company to obtain sufficient financing required for the exploration and development of its properties due to real or perceived increased investment risk.

 

The Company’s operations may also be adversely affected by changes in foreign government policies and legislation and other factors which are not within the control of the Company, including, but not limited to, renegotiation or nullification of existing contracts, claims or licenses, changes in mining policies or the legislation or regulatory requirements affecting mining or the personnel administering them, currency fluctuations and devaluations, exchange controls, factors (including withholding taxes) affecting foreign subsidiaries’ abilities to remit funds to the Company, economic sanctions, royalty and tax increases and retroactive tax claims, risk of terrorist activities, revolution, border disputes, implementation of tariffs and other trade barriers and protectionist practices, taxation policies, volatility of financial markets and fluctuations in foreign exchange rates, labour disputes and other risks arising out of foreign governmental sovereignty over the areas in which the Company’s operations are conducted. The Company’s operations may also be

 

38

 

adversely affected by laws and policies of such foreign jurisdictions affecting foreign trade, taxation and investment. If the Company’s operations are disrupted and/or the economic integrity of its contracts is threatened for unexpected reasons, there may be a corresponding material adverse effect on the Company’s business or operations.

 

In the event of a dispute arising in connection with the Company’s operations in a foreign jurisdiction where the Company conducts its business, the Company may be subject to the exclusive jurisdiction of foreign courts or may not be successful in subjecting foreign persons to the jurisdictions of the courts of Canada or enforcing Canadian judgments in such other jurisdictions. The Company may also be hindered or prevented from enforcing its rights with respect to a governmental instrumentality because of the doctrine of sovereign immunity. Accordingly, the Company’s activities in foreign jurisdictions could be substantially affected by factors beyond the Company’s control, any of which could have a material adverse effect on the Company.

 

The Company may in the future enter into agreements in order to expand its business and activities beyond the jurisdictions in which it currently does so. Such an expansion may present challenges and risks that the Company has not faced in the past, any of which could materially adversely affect the results of operations and/or financial condition of the Company.

 

Changes in rain patterns and other climatic effects may adversely impact the Company’s operations.

 

The effects of changes in rainfall patterns, water shortages and changing storm patterns and intensities have from time to time adversely impacted, and may in the future adversely impact, the cost, production levels and financial performance of the Company’s operations. There is no guarantee that there will be sufficient future rainfall to support the Company’s future demands in relation to its sites and operations, and this has and could adversely affect production or the Company’s ability to develop or expand projects and operations in the future. In addition, there can be no assurance that the Company will be able to obtain alternative water sources on commercially reasonable terms or at all in the event of prolonged drought conditions. Conversely, some of the Company’s sites and operations may in the future be subject, from time to time, to severe storms and high rainfalls leading to flooding and associated damage, which may result in, delays to, or loss of production and development of some of its sites, projects or operations. Extreme rain and flood conditions may exceed site water storage capacity with the potential for involuntary release by way of overflow from tailings storage facilities, which may cause environmental damage. Environmental damage may result in fines or even in criminal sanctions for violations, in addition to the obligation to redress any environmental damages cause, all of which may negatively affect our results of operations or financial condition.

 

Our delay or failure to complete the Ferrovanadium Conversion Plant could have an adverse effect on the Company’s growth prospects.

 

Successful completion of the Ferrovanadium Conversion Plant is subject to various factors, many of which are not within our control. These factors include the granting of consents and permits from the relevant government authorities, the availability, terms, conditions and timing of acceptable arrangements for transportation, construction and refining, the performance of engineering and construction contractors, mining contractors, suppliers and consultants, as well as the qualification of additional reserves. The lack of availability of acceptable contractual terms, or slower than anticipated performance by any contractor, could delay or prevent the successful completion of the Ferrovanadium Conversion Plant. Further expansion of our project may be compromised in the event of a prolonged decline in the market price of V2O5. There can be no guarantee as to when the Ferrovanadium Conversion Plant will be finalized, whether the resulting operations will achieve anticipated production volumes or whether the costs will be in line with those anticipated. The inability to complete the Ferrovanadium Conversion Plant as planned may negatively impact our operations, financial condition and growth prospects.

 

Inflation and efforts by the Brazilian government to combat inflation may contribute significantly to economic uncertainty in Brazil and could have an adverse effect on us.

 

Brazil has historically experienced periods of high inflation. Inflation, as well as governmental measures put in place to combat inflation, have had a material adverse effect on the Brazilian economy. Inflationary pressures persist, and actions taken in an effort to curb inflation, coupled with public speculation about possible future governmental actions, have in

 

39

 

the past contributed to economic uncertainty in Brazil and heightened volatility in the Brazilian securities market. The inflation rate in Brazil, as reflected by the Broad Consumer Price Index (Índice Nacional de Preços ao Consumidor Amplo) published by the Brazilian Institute of Geography and Statistics or IBGE (Instituto Brasileiro de Geografia e Estatística), was 4.31% in 2019, 3.75% in 2018 and 2.95% in 2017.

 

As a result of inflationary pressures and macroeconomic instability, the Brazilian government has historically adopted monetary policies that have resulted in Brazil’s interest rates being among the highest in the world. The Central Bank of Brazil sets the base interest rates (Sistema Especial de Liquidação e Custódia) (the “SELIC rate”) generally available to the Brazilian banking system, based on the expansion or contraction of the Brazilian economy, inflation rates and other economic indicators. The SELIC was 4.5% on December 31, 2019, 6.5% on December 31, 2018 and 7.00% on December 31, 2017. As of March 2020 the SELIC rate was 4.25%. Brazilian interest rates remain high, and any increase in interest rates could negatively affect our profitability and results of operations and could increase the costs associated with financing our operations.

 

Inflation and government measures to combat inflation, along with speculation about possible future governmental measures, have had and are expected to continue to have significant negative effects on the Brazilian economy, including heightened volatility in the Brazilian securities market. In addition, measures to control inflation have often included maintaining a tight monetary policy with high interest rates, thereby restricting the availability of credit and limiting economic growth. On the other hand, these policies may be incapable of preventing increases in inflation rates. Furthermore, the absence of such policies may trigger increases in inflation rates and thereby adversely affect economic stability. In the event of an increase in inflation, we may not be able to adjust the prices we charge our customers to offset the effects of inflation on our cost structure, which may adversely affect us.

 

Exchange rate fluctuations in Brazil against the U.S. dollar could adversely affect us.

 

Exchange rate instability may have a significant negative effect on the economies in which we operate and could adversely affect us. For example, the Brazilian currency has been historically volatile and has been devalued frequently over the past three decades. Since 1999, the Central Bank of Brazil has allowed the real to U.S. dollar exchange rate to float freely, and during this period, the real to U.S. dollar exchange rate has experienced frequent and substantial variations in relation to the U.S. dollar and other foreign currencies. Throughout this period, the Brazilian government has implemented various economic plans and used various exchange rate policies, including sudden devaluations, periodic mini-devaluations (during which the frequency of adjustments has ranged from daily to monthly), exchange controls, dual exchange rate markets and a floating exchange rate system.

 

Although long-term depreciation of the real is generally linked to the rate of inflation in Brazil, depreciation of the real occurring over shorter periods of time has resulted in significant variations in the exchange rate between the real, the U.S. dollar and other currencies. We cannot predict whether the Central Bank of Brazil or the Brazilian government will continue to let the real float freely or intervene in the exchange rate market by returning to a currency band system or otherwise. The real may depreciate or appreciate substantially against the U.S. dollar and other currencies. Furthermore, Brazilian law provides that, whenever there is a serious imbalance in Brazil’s balance of payments or there are substantial reasons to foresee a serious imbalance, temporary restrictions may be imposed on remittances of foreign capital abroad. We cannot assure you that such measures will not be taken by the Brazilian government in the future.

 

The real /U.S. dollar exchange rate reported by the Central Bank was R$3.3080 per U.S. dollar on December 31, 2017, which reflected a 1.5% depreciation of the real  against the U.S. dollar during 2017. The real/U.S. dollar exchange rate reported by the Central Bank was R$3.8748 per US$1.00 on December 31, 2018, which reflected a 17% depreciation of the real against the U.S. dollar during 2018. As of December 31, 2019, the exchange rate for the purchase of U.S. dollars as reported by the Central Bank was R$ 4.0307 per US$1.00, which reflected a 4% depreciation of the real against the U.S. dollar during 2019.

 

Also, the prices of certain raw materials used in our operations in Brazil are denominated in or linked to the U.S. dollar. When the Brazilian real depreciates against the U.S. dollar, the cost in Brazilian reais of our U.S. dollar-linked raw materials increases, and our operating income in Brazilian reais decreases to the extent that we are unable to pass on these cost increases to our customers.

 

40

 

In the course of our business, we may decide to enter into financial derivative transactions in the future to hedge our exposure to foreign currency exchange rate variations. However, we cannot assure you that these instruments will be available to us at favorable terms, if at all, or will fully hedge our exposure.

 

A devaluation of the real against the U.S. dollar might also create inflationary pressures in Brazil and lead to increases in interest rates, which could adversely affect the growth of the Brazilian economy as a whole, and undermine our financial situation and operating results. On the other hand, the appreciation of the real in relation to the U.S. dollar may undermine the economy growth driven by exports in Brazil.

 

Because of the degree of volatility and the uncertainty of the factors that impact the Brazilian real’s exchange rate, it is difficult to predict future exchange rate movements. In addition, the Brazilian government may change its foreign currency policy, and any governmental interference in the exchange rate, or the implementation of exchange control mechanisms, could influence the real’s exchange rate. In light of the foregoing, there can be no assurance we will be able to protect ourselves against the effects of adverse fluctuations of the Brazilian real against the U.S. dollar.

 

Any further downgrading of Brazil’s credit rating could adversely impact the Brazilian economy and our operations.

 

Credit ratings affect investors’ perceptions of risk and, as a result, the trading value of securities and yields required on future debt issuance in the capital markets. Rating agencies regularly evaluate Brazil and its sovereign ratings, which are based on a number of factors, including macroeconomic trends, fiscal and budgetary conditions, indebtedness metrics and the prospect of changes in any of these factors.

 

Rating agencies began the classification review of Brazil’s sovereign credit rating in September 2015. Brazil lost its investment grade status by the three main rating agencies. On September 30, 2015, S&P initially reduced Brazil’s credit rating from BBB- to BB+ and, subsequently, in February 2016, reduced it again from BB+ to BB, and maintained its negative outlook on the rating, citing a worsening credit situation since the first downgrade. In February 2018, S&P lowered its long term rating for Brazil’s sovereign credit from BB to BB-, with a stable outlook, citing budget deficit and less timely and effective reform policymaking. In December 2015, Moody’s placed Brazil’s Baa3 issuer and bond ratings on review for a downgrade, and subsequently downgraded Brazil’s issuer and bond ratings to below investment grade, to Ba2 with a negative outlook. In April 2018, Moody’s affirmed its Ba2 rating but changed its outlook from negative to stable, citing stabilization of macroeconomic conditions, signs of recovery in the economy, falling inflation rates and a clearer fiscal outlook as reasons for the change. Fitch Ratings Inc. (“Fitch”) downgraded Brazil’s sovereign credit rating to BB+ with a negative outlook in December 2015 and again to BB in May 2016, with a negative outlook. In February 2018, Fitch lowered its long term rating for Brazil’s sovereign credit from BB to BB-, with a stable outlook, which was reaffirmed on August 2018. As a result, Brazil lost its investment grade status with all three major rating agencies and, consequently, the trading prices of securities of the Brazilian debt and equity markets were negatively affected. If the Brazilian federal government is unable to gather the required support in the Brazilian Congress to pass additional specific reforms, the Brazilian sovereign rating could be further downgraded.

 

Any further downgrade of Brazil’s sovereign credit ratings could heighten investors’ perception of risk and, as a result, adversely affect the Brazilian economy and our operations.

 

The developing consequences of the Samarco dam failure may adversely affect us.

 

On November 5, 2015, the Samarco Mineração S.A. (“Samarco”) iron ore operations experienced a tailings dam failure that resulted in a release of mine tailings, flooding the communities of Bento Rodrigues, Gesteira and Paracatu and impacting other communities downstream and the environment of the Rio Doce basin. Samarco is a joint venture owned equally by BHP Billiton Brasil Limitada and Vale S.A.

 

The heightened awareness of mining impact particularly in Brazil following the Samarco and Brumadinho dam collapses in 2015 and 2019, respectively, as well as increased regulatory oversight may result in the amount and timing of future environmental and related expenditures to vary substantially from those currently anticipated. We may encounter delays in obtaining environmental and other operating licenses, or not be able to obtain and/or renew an authorization, permit

 

41

 

 and/or license. These events and additional costs may have a negative impact on our operations and have an adverse effect on our financial performance.

 

The developing consequences of the Brumadinho dam failure may adversely affect us.

 

On January 25, 2019, the Córrego do Feijão mine owned by Vale S.A. experienced a tailings dam failure that resulted in a release of mine tailings, flooding the communities of Brumadinho and impacting other communities downstream and the environment of the Rio Paraopeba.

 

The heightened awareness of the potential impacts of mining activities following the Brumadinho dam failure as well as increased regulatory oversight may cause the amount and timing of future environmental and related expenditures to vary substantially from those currently anticipated and we may encounter delays in obtaining environmental and other operating licenses, or not be able to obtain and/or renew an authorization, permit and/or license. These events and additional costs may have a negative impact on our operations and have an adverse effect on our financial performance.

 

DIVIDENDS

 

The constating documents of the Company do not limit its ability to pay dividends on its Common Shares, however. The Company has not paid any dividends since incorporation. In addition, the payment of dividends in the future, if any, will be made at the discretion of the Board.

 

DESCRIPTION OF CAPITAL STRUCTURE

 

The authorized capital of the Company consists of an unlimited number of Common Shares. As of December 31, 2019 there were 554,533,286 Common Shares issued and outstanding. As of the date of this AIF, the Company had 562,975,760 Common Shares issued and outstanding, 2,946,700 Common Shares reserved for issuance for stock options granted to directors, officers, employees and consultants, 752,000 Common Shares reserved for issuance upon vesting of restricted share units (“RSU”), and approximately 104,593,000 Common Shares reserved for issuance upon the exercise of share purchase warrants.

 

Common Shares

 

Holders of Common Shares are entitled to receive notice of and to attend any meetings of shareholders and shall have one vote per share at all meetings, except meetings at which only holders of another class or series of shares are entitled to vote separately as such class or series. Holders of Common Shares are entitled to receive on a pro rata basis such dividends, if any, as and when declared by the Board and, upon liquidation, dissolution or winding up of the Company, are entitled to receive on a pro rata basis the net assets of the Company after payment of debts and other liabilities, in each case subject to the rights, privileges, restrictions and conditions attaching to any other series or class of shares ranking senior in priority to or on a pro rata basis with the holders of Common Shares. The Common Shares do not carry any pre-emptive, subscription, redemption or conversion rights, nor do they contain any sinking or purchase fund provisions.

 

Incentive Options

 

On June 29, 2017, shareholders adopted a 10% rolling share compensation plan under which the Company may issue RSUs, and options (“Options”) to purchase Common Shares. Unlike the Options, the RSUs do not require the payment of any monetary consideration to the Company. Instead, each RSU represents a right to receive one Common Share following the attainment of vesting criteria determined at the time of the award.

 

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MARKET FOR SECURITIES

 

Trading Price and Volume

 

The Common Shares trade on the TSX under the symbol “LGO”. The table below shows the price ranges and volume of trading for each month of the financial year ended December 31, 2019 and for each month of the current financial year up to the date of this AIF.

 

Month

 

High($)

 

Low($)

 

Volume

 

(2020)

 

 

 

 

 

 

 

March (1- 16)

 

0.93

 

0.56

 

4,729,138

 

February

 

1.16

 

0.84

 

7,567,485

 

January

 

1.19

 

0.98

 

5,317,756

 

(2019)

 

 

 

 

 

 

 

December

 

1.21

 

0.92

 

19,037,933

 

November

 

1.34

 

0.81

 

9,548,146

 

October

 

1.51

 

1.31

 

9,929,844

 

September

 

1.75

 

1.33

 

6,720,384

 

August

 

1.91

 

1.33

 

16,630,296

 

July

 

1.99

 

1.64

 

12,750,206

 

June

 

2.01

 

1.51

 

14,319,578

 

May

 

1.99

 

1.45

 

24,786,510

 

April

 

2.19

 

1.52

 

31,686,958

 

March

 

2.55

 

1.95

 

37,856,025

 

February

 

2.86

 

2.09

 

12,492,018

 

January

 

3.27

 

2.48

 

22,830,138

 

 

DIRECTORS AND OFFICERS

 

The following table sets forth the name, province of residence and position held with the Company of each director and executive officer effective as of the date of this AIF. All directors hold office until the next annual meeting of shareholders of the Company or until their successors are elected or appointed.

 

Name and
Residence

 

Current Position(s)
with the Company

 

Principal Occupation

Alberto Arias
Florida,
United States

 

Non-Executive Chair

 

Director since: April 2011

 

Committee Membership(s):

· Corporate Governance

· Compensation

· Sales

 

Mr. Arias is the founder and Portfolio Manager of Arias Resource Capital Management LP and has over 25 years of experience in the field of international mining finance. Prior to founding Arias Resource Capital Management LP, Mr. Arias worked for eight years at Goldman, Sachs & Co., most recently acting as Managing Director and Head of Equity Research for metals and mining in the U.S., Canada and Latin America. Prior to Goldman Sachs, Mr. Arias worked for four years at UBS Warberg as Executive Director and Analyst covering the Latin American metals and mining sector.

 

 

 

 

 

David Brace
Ontario,
Canada

 

Director since: June 26, 2012

Committee Membership(s):

 

Mr. Brace served as Chief Executive Officer and a director of Karmin Exploration Inc. from September 2011 to October 2019. Prior to this, and between January through September of 2011, Mr. Brace served as President of Lambton Capital Inc., a private investment firm focused on evaluating mining investments. Prior to this, Mr. Brace served as the CEO and a director of GlobeStar Mining Corporation until that company’s acquisition by Perilya

 

43

 

Name and
Residence

 

Current Position(s)
with the Company

 

Principal Occupation

 

 

· Corporate Governance
· Compensation
· Audit
· Operations

 

 Limited in December of 2010. Prior to this, Mr. Brace served as Executive Vice-President of Business Development with Aur Resources until August of 2007.

 

 

 

 

 

Jonathan Lee
New York,
United States

 

Director since: April 4, 2019

Committee Membership(s):
· Operations
· Sales

 

Mr. Lee is a Vice President with the private equity firm Arias Resource Capital Management LP. Prior to Arias Resource Capital Management, Mr. Lee worked with Ambac Assurance Corporation, a global bond insurer. Prior to Ambac, Mr. Lee held positions with the investment firm Raging River Capital, the mining hedge fund Geologic Resource Partners LLC, and Byron Capital Markets Ltd. in Canada as a mining & metals equity research analyst. Additionally, Mr. Lee has prior experience as an Environmental Engineer with several construction and engineering firms. Mr. Lee previously sat on the boards of Park Lawn Company Ltd. and Bearing Lithium Corp. Mr. Lee earned his MBA from the Stern School of Business at New York University and holds a BS in Chemical Engineering with a minor in Economics from Tufts University.

 

 

 

 

 

Daniel Tellechea
Arizona,
United States

 

Director since: July 9, 2015

Committee Membership(s):

· Corporate Governance
· Compensation
· Audit
· Operations
· Sales

 

Mr. Tellechea has business experience in Brazil and extensive experience in international mining, most recently serving as President & CEO of Sierra Metals, Inc. between 2007 and 2014, a Toronto based mining company listed on both the Toronto (TSX) and Lima (BVL) Stock Exchanges with assets in Mexico and Peru. Prior to Sierra Metals, Mr. Tellechea was President and CEO of Asarco LLC from 2003 to 2005, he served as the Managing Director of Finance and Administration for Asarco’s parent, Grupo Mexico from 1994 to 2003 and also served as Asarco’s Chief Financial Officer and Vice-president of finance for Southern Copper Corporation from 1999 to 2003, which was majority owned by Grupo Mexico.

 

 

 

 

 

Koko Yamamoto
Ontario,
Canada

 

Director since: July 9, 2015

Committee Membership(s):

· Compensation
· Audit

 

Ms. Yamamoto is a chartered professional accountant. She is a partner at McGovern Hurley LLP, a CPAB registered firm, since 2003 and her practice includes a focus on assurance engagements for reporting issuers in the resource sector. Ms. Yamamoto is involved in initial public offerings and private placements, mergers and acquisitions. Ms. Yamamoto is also registered as a panel auditor with the Investment Industry Regulatory Organization of Canada (IIROC), which enables her to conduct audits of investment dealers. Prior to joining McGovern Hurley LLP in 1998, Ms. Yamamoto worked for a start-up Japanese medical technology company, both in Tokyo and San Francisco.

 

 

 

 

 

Paulo Misk
Minas Gerais,
Brazil

 

President & Chief Executive Officer

 

Director since: September 9, 2019

 

Mr. Misk is a mining engineer with over 28 years’ experience in operational management at mining facilities for various large multi-national mining companies across a wide range of commodities, including: niobium, chromite, iron, tin, gold, lithium and a range of other industrial minerals. Most recently, Mr. Misk ran Anglo American’s Catalão Project from 2011 to 2014 where he was promoted to Head of Niobium Operations after serving as Niobium General Manager for one year. During his tenure at the Catalão Project he was responsible for implementing innovative policies and fostering a high-performance culture that greatly improved production

 

44

 

Name and
Residence

 

Current Position(s)
with the Company

 

Principal Occupation

 

 

 

 

rates and recoveries, as well as dramatically reduced unit costs resulting in a doubling of Niobium EBITDA. Mr. Misk’s prior experience includes several years as Talc Operational Director and as Geology, Mining Operation Manager for GP Investments’ Magnesita Refratátorios project in Brazil between 2002 and 2010. Additionally, he served as Operational Director for AMG Group where he managed their tantalum, niobium, tin, feldspar and lithium operations between 2010 and 2011. Between 1994 and 2002, Mr. Misk spent his earlier career with AMG Group as Industrial Minerals Manager after being promoted from Tantalum and Niobium Division Manager.

 

 

 

 

 

Ernest Cleave
Ontario,
Canada

 

Chief Financial Officer

 

Mr. Cleave is a financial professional with over 20 years’ experience in finance strategy, compliance, financial reporting, internal control and strategic planning. Prior to joining the Company, Mr. Cleave served as a director, CFO and corporate controller and in senior finance positions for large, multi-national companies in the mining, manufacturing and retail sectors, including Goldcorp Inc. and Falconbridge Limited. Mr. Cleave started his career with PricewaterhouseCoopers and holds a CA designation in both Australia and New Zealand, the CPA and CMA designations in Canada, the CPA and FIPA designations in Australia and the CIMA designation in the United Kingdom.

 

 

 

 

 

Luciano Chaves
Bahia,
Brazil

 

Vice President of Finance and Administration at Vanádio

 

Mr. Chaves has over 20 years of experience in financial management in a range of different industries. Prior to joining the Company, he led the finance department of multinational mining and services companies in Latin America, including Sibelco and Hewitt. Since joining the Company in 2011, his understanding of both domestic and international business environment has brought a differentiated contribution to the Maracás Menchen Mine.

 

Alberto Arias is the sole director of each of the general partners of Arias Resource Capital Fund L.P., Arias Resource Capital Fund II L.P. and Arias Resource Capital Fund II (Mexico) L.P. which, as at the date of this AIF, in aggregate hold 247,504,517 of our Common Shares representing approximately 43.96% of our outstanding Common Shares. Our remaining directors and executive officers, as a group, beneficially owned, directly or indirectly, or exercised control or direction over, 724,861 common shares, representing less than 1% of the total number of common shares outstanding.

 

Corporate Cease Trade Orders, Bankruptcies, Penalties or Sanctions

 

Other than as set forth below, no director, executive officer or chief financial officer of the Company:

 

(a)         is, as at the date of this document, or has been, within ten years before the date of this AIF, a director, chief executive officer or chief financial officer of any company (including the Company) that, while that person was acting in that capacity: (i) was the subject of a cease trade or similar order or an order that denied the relevant company access to any exemption under the securities legislation, for a period of more than 30 consecutive days; (ii) was subject to an event that resulted, after the director, chief executive officer or chief financial officer ceased to be a director, chief executive officer or chief financial officer, in the company being the subject of a cease trade order or similar order or an order that denied the relevant company access to any exemption under securities legislation, for a period of more than 30 consecutive days; or (iii) within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets, or

 

45

 

(b)         has, within the ten years before the date of this AIF, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the proposed director.

 

Except as set out below, no director or executive officer of the Company, or a shareholder holding sufficient number of securities of the Company to affect materially the control of the Company, has been subject to: (i) any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority; or (ii) any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor in making an investment decision.

 

From March 28, 2013 until January 21, 2014, Mr. Arias served as a director on the board of Colossus Minerals Inc. (“Colossus”). On January 14, 2014, Colossus filed a notice of intention to make a proposal under the Bankruptcy and Insolvency Act (Canada). Colossus was delisted from the TSX effective February 21, 2014.

 

Mr. Tellechea was a director of Mercator Minerals, Ltd. until September 4, 2014. Mercator filed a notice of intention to make a proposal under the Canadian Bankruptcy and Insolvency Act on August 26, 2014.

 

Conflicts of Interest

 

Certain of the Company’s directors and officers serve or may agree to serve as directors or officers of other reporting companies or have significant shareholdings in other reporting companies. For a list of the other reporting issuers in which directors of the Company also serve as directors, please see the most recent management information circular of the Company dated May 28, 2019. To the extent that such other companies may participate in ventures in which the Company may participate, the directors of the Company may have a conflict of interest in negotiating and concluding terms respecting the extent of such participation. In the event that such a conflict of interest arises at a meeting of the Company’s directors, a director who has such a conflict will step out of the room during discussions and abstain from voting for or against the approval of such participation or such terms. From time to time, several companies may participate in the acquisition, exploration and development of natural resource properties thereby allowing for their participation in larger programs, permitting involvement in a greater number of programs and reducing financial exposure in respect of any one program. It may also occur that a particular company will assign all or a portion of its interest in a particular program to another of these companies due to the financial position of the company making the assignment. Under the laws of Canada, the directors of the Company are required to act honestly, in good faith and in the best interests of the Company. In determining whether or not the Company will participate in a particular program and the interest therein to be acquired by it, the directors will primarily consider the degree of risk to which the Company may be exposed and its financial position at that time.

 

AUDIT COMMITTEE DISCLOSURE

 

The purposes of the audit committee of the Board of Directors (the “Audit Committee”) are to assist the Board of Directors’ oversight of: the integrity of the Company’s financial statements; the Company’s compliance with legal and regulatory requirements; the qualifications and independence of the Company’s independent auditors; and the performance of the independent auditors and the Company’s internal audit function.

 

National Instrument 52-110 — Audit Committees of the Canadian Securities Administrators (“NI 52-110”) governs composition and function of audit committees for every TSX listed company, including the Company. NI 52-110 requires the Company to have a written audit committee Charter and to make the disclosure required by Form 52-110F1, which includes disclosure of the text of the audit committee charter in the management information circular of the Company wherein management solicits proxies from the security holders of the Company for the purpose of electing directors to the Board.

 

46

 

Audit Committee Charter

 

The Board of Directors has developed a written Audit Committee charter (the “Charter”). A copy of the Charter is attached hereto as Schedule “B”.

 

Composition of the Audit Committee

 

The Audit Committee is comprised of three directors: Koko Yamamoto (Chair), David Brace and Daniel Tellechea. Each member of the Audit Committee is financially literate and Koko Yamamoto and Daniel Tellechea are independent, as such terms are defined in NI 52-110.

 

Relevant Education and Experience

 

For a description of the education and experience of each Audit Committee member that is relevant to the performance of his responsibilities as a member of the Audit Committee, see “Directors and Officers”.

 

Reliance on Certain Exemptions

 

At no time since the Company’s listing on the TSX in July, 2016 has the Company relied on either (a) an exemption in section 2.4 of NI 52-110 (De Minimus Non-audit Services); or (b) an exemption from NI 52-110, in whole or in part, granted under Part 8 (Exemptions) of NI 52-110. Prior to the Company’s listing on the TSX, it had relied on the exemption provided for in section 6.1 of NI 52-110, Part 5 (Reporting Obligations).

 

Audit Committee Oversight

 

At no time since the commencement of the Company’s most recently completed financial year has there been a recommendation of the Audit Committee to nominate or compensate an external auditor which was not adopted by the Board of Directors.

 

Pre-Approval Policies and Procedures

 

The Audit Committee has not adopted specific policies and procedures for the engagement of non-audit services.

 

Audit Fees

 

The Company appointed PricewaterhouseCoopers LLP, Chartered Professional Accountants, as its auditor. The PricewaterhouseCoopers LLP fees incurred by the Company, excluding expenses, in each of the last two fiscal years for audit services were $100,000 in 2019 and $95,000 in 2018.

 

The Company incurred fees of R$342,289 for the fiscal year ended December 31, 2019 relating to PricewaterhouseCoopers Brazil, external auditors of Vanádio in Brazil, R$296,000 for the fiscal year ended December 31, 2018.

 

The Company incurred fees of €15,000 for the fiscal year ended December 31, 2019 (Nil 2018) relating to PricewaterhouseCoopers Ireland, external auditors of Largo Ireland, in Ireland.

 

Audit-Related Fees

 

PricewaterhouseCoopers LLP fees incurred in each of the last two fiscal years for assurance and related services related to the performance of the auditor’s review for the Company’s financial statements not included in audit fees above were $45,000 in 2019 and $45,000 in 2018.

 

47

 

Tax Fees

 

PricewaterhouseCoopers LLP fees incurred in each of the last two fiscal years for professional tax services rendered were $144,925 in 2019 and $146,455 in 2018. The professional tax services related to corporate tax compliance, tax planning and other related tax services.

 

PricewaterhouseCoopers Brazil billed Vanádio R$43,837 in the fiscal year ending December 31, 2019 and R$58,467 in the fiscal year ending December 31, 2018 for tax compliance in Brazil.

 

PricewaterhouseCoopers Ireland billed Largo Ireland €31,000 in the fiscal year ending December 31, 2019 (Nil 2018) for tax advisory services in Ireland.

 

All Other Fees

 

PricewaterhouseCoopers LLP fees incurred in each of the last two fiscal years for other advisory services rendered were $20,500 in 2019 and $221,900 in 2018.

 

LEGAL PROCEEDINGS AND REGULATORY ACTIONS

 

Except as disclosed below, to the best of the Company’s knowledge, there were no legal proceedings during the year ended December 31, 2019 to which the Company was a party or of which any of the Company’s property was subject that would have had a material adverse effect on the Company, nor are there any such legal proceedings existing or contemplated to which the Company is a party or of which any of the Company’s property is subject that would have a material adverse effect on the Company.

 

There have been no penalties or sanctions imposed against the Company by a court relating to securities legislation or by a securities regulatory authority during the fiscal year ended December 31, 2019, or any other time that would likely be considered important to a reasonable investor making an investment decision in the Company. The Company has not entered into any settlement agreements with a court relating to securities legislation or with a securities regulatory authority during the fiscal year ended December 31, 2019.

 

INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS

 

No director or executive officer of the Company or any person or company who or that beneficially owns, or controls or directs, directly or indirectly, more than 10% of the Company’s Common Shares (or any associate of affiliate of that person or company) has had any direct or indirect material interest in any transaction involving the Company since January 1, 2017 to the date hereof, or in any proposed transaction which has materially affected or would materially affect the Company or its subsidiaries other than as disclosed herein and as referenced below:

 

·                  January 2017 Financing - participation by the Arc Funds and CIH (see “General Development of the Business — Three Year History — Equity Financings”); and

 

·                  December 2017 Financing - participation by the Arc Funds and CIH (see “General Development of the Business — Three Year History — Equity Financings”).

 

TRANSFER AGENT AND REGISTRAR

 

The Company’s transfer agent is TSX Trust Company which is located in Toronto, Ontario.

 

48

 

MATERIAL CONTRACTS

 

Except for contracts entered into by the Company in the ordinary course of business or otherwise disclosed herein, the only material contracts entered into during the financial year ended December 31, 2019, or which remain in effect can reasonably be regarded as presently material are:

 

·                  Governance Agreement, see “Glossary”;

 

·                  Director Nomination Agreement, see “Glossary”; and

 

·                  Offtake Agreement, see “Description of the Business — Marketing and Distribution”.

 

INTERESTS OF EXPERTS

 

Porfírio Cabaleiro Rodriguez, Mining Engineer, BSc (Mine Eng), MAIG employed by GE21, Leonardo Apparicio da Silva, Mining Engineer, BSc (Min Eng), MSc (Met Eng), MAIG associated to GE21, and Fabio Valerio Xavier, Geologist,BSc , Geol, MAIG associated to GE21, were the authors of the Technical Report — see “Description of the Business - Material Project  — Maracás Menchen Mine “.

 

To the knowledge of the Company, none of the aforementioned individuals had an interest in any securities or other properties of the Company, its associates or affiliates as at the date the individual prepared the applicable report or as at the date hereof, and none of the aforementioned individuals holds any other interest in the assets of the Company nor do they expect to receive such an interest.

 

PricewaterhouseCoopers LLP, Chartered Professional Accountants, are the auditors of the Company and have performed the audit in respect of the audited annual consolidated financial statements of the Company for the years ended December 31, 2019 and December 31, 2018. PricewaterhouseCoopers LLP, Chartered Professional Accountants were independent of the Company in accordance with the applicable rules of professional conduct.

 

ADDITIONAL INFORMATION

 

Additional information, including directors’ and officers’ remuneration and indebtedness, principal holders of the Company’s securities, and securities authorized for issuance under the Company’s stock option plan is contained in the management information circular of the Company dated May 28, 2019.

 

Additional financial information is provided in the Company’s annual consolidated financial statements and management’s discussion and analysis for the year ended December 31, 2019. These documents and other information about the Company can be found on SEDAR under the Company’s profile at www.sedar.com.

 

49

 

SCHEDULE A
GLOSSARY

 

“AIF”

 

means this annual information form.

 

 

 

“ARC Funds”

 

means, collectively, Arias Resource Capital Fund LP, Arias Resource Capital Fund II LP, and Arias Resource Capital Fund II (Mexico) LP.

 

 

 

“Audit Committee”

 

means the audit committee of the Board.

 

 

 

“Banks”

 

means, collectively, Banco Itau BBA S.A., Banco Votorantim S.A. and Banco Bradesco S.A.

 

 

 

“BNDES”

 

means the Brazilian Development Bank or Banco Nacional do Desenvolvimento.

 

 

 

“BNDES Facility”

 

means the agreement with BNDES for a R$333 million (approximately US$166 million equivalent) debt financing facility for the construction and development of the Maracás Menchen Mine.

 

 

 

“BNDES Facilities”

 

means, collectively, the (i) debt financing facility, dated as of June 22, 2012, by and between Vanádio and BNDES, as amended, restated, supplemented or otherwise modified from time to time; (ii) the debt facility, dated as of February 29, 2016, by and between the Company and the Consortium, as amended, restated, supplemented or otherwise modified from time to time, (iii) the debt facility, dated as of December 23, 2016, by and between the Company and the Consortium, as amended, restated, supplemented or otherwise modified from time to time, and (iv) the export credit facilities by and among Vanádio, Votorantim S.A. and Banco Itaú BBA S.A.

 

 

 

“Board”

 

means the board of directors of the Company.

 

 

 

“Campbell Pit”

 

refers to the main vanadium deposit, the Campbell deposit, of the Maracás Menchen Mine.

 

 

 

“Campo Alegre Project”

 

means the Campo Alegre de Lourdes iron-titanium-vanadium exploration project in Brazil.

 

 

 

“CDI”

 

means certificado de deposito interbancario and is the Brazilian interbank rate. CDI is updated daily and calculated by CETIP and the rate on March 13, 2019 was 6.04%.

 

 

 

“CIH”

 

Cranley Investments Holdings LCC.

 

 

 

“Common Shares”

 

means the common shares in the capital of the Company.

 

 

 

“Currais Novos Project”

 

means the Currais Novos tungsten tailings project in Rio Grande De Norte, Brazil.

 

 

 

“Director Nomination Agreement”

 

means the amended and restated director nomination agreement entered into between the Company and ARC Funds in May 2015, as amended and restated March 2016, enabling them to designate (a) a total of three (3) additional persons to be nominated for election to Largo’s Board for election by Largo shareholders for so long as the ARC Funds, whether individually or together, own at least 50% of the issued and outstanding Common Shares, (b) a total of two (2) additional persons to be nominated for election to Largo’s Board for election by Largo shareholders for so long as the ARC Funds, whether individually or together, own less than 50% but not less than 40% of the issued and outstanding Common Shares, and (c) a total of one (1) additional person to be nominated for election to Largo’s Board for election by Largo shareholders, for so long as the ARC Funds, whether individually or together, own less than 40% but not less than 20% of the issued and outstanding Common Shares. These nomination rights

 

A-1

 

 

 

are supplemented the ARC Funds’ existing right to nominate one (1) director to the Board under the Governance Agreement.

 

 

 

“Expansion”

 

means the Company’s planned expansion of the Maracás Menchen Mine to increase production capacity from the nameplate rate of approximately 800 t month of V2O5 to 1,000 t/month, being an increase of 25% over nameplate capacity.

 

 

 

“feasibility study”

 

is a comprehensive technical and economic study of the selected development option for a mineral project that includes appropriately detailed assessments of applicable Modifying Factors together with any other relevant operational factors and detailed financial analysis that are necessary to demonstrate, at the time of reporting, that extraction is reasonably justified (economically mineable). The results of the study may reasonably serve as the basis for a final decision by a proponent or financial institution to proceed with, or finance, the development of the project. The confidence level of the study will be higher than that of a Pre Feasibility Study.

 

 

 

“FeV”

 

means Ferrovanadium, an alloy formed by combining iron (Fe) and vanadium (V).

 

 

 

“Governance Agreement”

 

means the amended and restated investor nomination rights and governance agreement, made as of the 9th day of March, 2012, by the Company and the Lead Investors pursuant to which the Lead Investors are each entitled, among other things, to nominate one director to the Board so long as their holding of Common Shares represents no less than 10% of the issued and outstanding Common Shares.

 

 

 

“Indicated Mineral Resource”

 

is that part of a Mineral Resource for which quantity, grade or quality, densities, shape and physical characteristics are estimated with sufficient confidence to allow the application of Modifying Factors in sufficient detail to support mine planning and evaluation of the economic viability of the deposit. Geological evidence is derived from adequately detailed and reliable exploration, sampling and testing and is sufficient to assume geological and grade or quality continuity between points of observation. An Indicated Mineral Resource has a lower level of confidence than that applying to a Measured Mineral Resource and may only be converted to a Probable Mineral Reserve.

 

 

 

“INEMA”

 

means Instituto do Meio Ambiente e Recursos Hídricos.

 

 

 

“Inferred Mineral Resource”

 

is that part of a Mineral Resource for which quantity and grade or quality are estimated on the basis of limited geological evidence and sampling. Geological evidence is sufficient to imply but not verify geological and grade or quality continuity. An Inferred Mineral Resource has a lower level of confidence than that applying to an Indicated Mineral Resource and must not be converted to a Mineral Reserve. It is reasonably expected that the majority of Inferred Mineral Resources could be upgraded to Indicated Mineral Resources with continued exploration.

 

 

 

“kg”

 

means kilogram.

 

 

 

“km”

 

means kilometer.

 

 

 

“kt”

 

thousand tonnes.

 

 

 

“Lead Investors”

 

means ARC Funds, EP Cayman Ltd., Eton Park Master Fund, Ltd. and Ashmore Cayman SPC No. 2 Limited.

 

 

 

“m”

 

means meter.

 

A-2

 

“Maracás Menchen Mine”

 

means the Maracás vanadium mine in Bahia State, Brazil, later renamed the Maracás Menchen Mine, which includes the Campbell Pit and the Ford Facility.

 

 

 

“Maracás Project”

 

means the vanadium deposit property in the municipality of Maracás in eastern Bahia State, Brazil.

 

 

 

“March 2016 Financing”

 

means the non-brokered private placement offering of an aggregate of 209,392,178 units at a price of $0.175 per unit for aggregate gross proceeds of approximately $36.6 million, completed in March 2016. Each unit was comprised of one Common Share and one-half of one Common Share purchase warrant, with each whole warrant entitling the holder thereof to acquire one Common Share at a price of $0.29 per share for a period of five years from the date of issuance.

 

 

 

“Measured Mineral Resource”

 

is that part of a Mineral Resource for which quantity, grade or quality, densities, shape, and physical characteristics are estimated with confidence sufficient to allow the application of Modifying Factors to support detailed mine planning and final evaluation of the economic viability of the deposit. Geological evidence is derived from detailed and reliable exploration, sampling and testing and is sufficient to confirm geological and grade or quality continuity between points of observation. A Measured Mineral Resource has a higher level of confidence than that applying to either an Indicated Mineral Resource or an Inferred Mineral Resource. It may be converted to a Proven Mineral Reserve or to a Probable Mineral Reserve.

 

 

 

“Mineral Reserve”

 

is the economically mineable part of a Measured and/or Indicated Mineral Resource. It includes diluting materials and allowances for losses, which may occur when the material is mined or extracted and is defined by studies at Pre Feasibility or Feasibility level as appropriate that include application of Modifying Factors. Such studies demonstrate that, at the time of reporting, extraction could reasonably be justified. The reference point at which Mineral Reserves are defined, usually the point where the ore is delivered to the processing plant, must be stated. It is important that, in all situations where the reference point is different, such as for a saleable product, a clarifying statement is included to ensure that the reader is fully informed as to what is being reported. The public disclosure of a Mineral Reserve must be demonstrated by a Pre Feasibility Study or Feasibility Study.

 

 

 

“Mineral Resource”

 

is a concentration or occurrence of solid material of economic interest in or on the Earth’s crust in such form, grade or quality and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, grade or quality, continuity and other geological characteristics of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge, including sampling.

 

 

 

“Modifying Factors”

 

are considerations used to convert Mineral Resources to Mineral Reserves. These include, but are not restricted to, mining, processing, metallurgical, infrastructure, economic, marketing, legal, environmental, social and governmental factors.

 

 

 

“NAN”

 

Novo Amparo Norte.

 

 

 

“Near Mine Targets” or “NMT”

 

has the meaning given to that term under heading “Description of Mineral Properties — The Maraçãs Menchen Mine”.

 

 

 

“NI 43-101”

 

means the Canadian Securities Administrators National Instrument 43-101 — Standards of Disclosure for Mineral Projects.

 

 

 

“Northern Dancer Project”

 

means the tungsten-molybdenum deposit property in Yukon Territory, Canada.

 

A-3

 

“October 2016 Financing”

 

means the non-brokered private placement offering of 11,111,111 units at a price of $0.45 per unit for aggregate gross proceeds of $5 million, completed in October 2016. Each unit was comprised of one Common Share and one-half of one Common Share purchase warrant, with each whole warrant entitling the holder thereof to purchase one Common Share at a price of $0.65 per share for a period of three years from the date of issuance. The ARC Funds purchased 6,228,232 units and CIH acquired 555,555 units.

 

 

 

“Offtake Agreement”

 

means the offtake agreement dated May 13, 2008 with Glencore International AG pursuant to which the Company has agreed to sell in U.S. dollars to Glencore, and Glencore agreed to acquire, 100% of the V2O5 production at the Maracás Menchen Mine. The Offtake Agreement will terminate effective April 30, 2020. See “Description of the Business — Marketing and Distribution”.

 

 

 

“PEA”

 

has the meaning given to that term under heading “Description of Mineral Properties — The Maraçãs Menchen Mine”.

 

 

 

“Pine Facility”

 

means a US$3.85 million short term loan facility entered into on March 2, 2016 with Banco Pine to roll over its then existing credit facility.

 

 

 

“Pre Feasibility Study”

 

is a comprehensive study of a range of options for the technical and economic viability of a mineral project that has advanced to a stage where a preferred mining method, in the case of underground mining, or the pit configuration, in the case of an open pit, is established and an effective method of mineral processing is determined. It includes a financial analysis based on reasonable assumptions on the Modifying Factors and the evaluation of any other relevant factors which are sufficient for a Qualified Person, acting reasonably, to determine if all or part of the Mineral Resource may be converted to a Mineral Reserve at the time of reporting. A Pre Feasibility Study is at a lower confidence level than a Feasibility Study.

 

 

 

“Probable Mineral Reserve”

 

is the economically mineable part of an Indicated, and in some circumstances, a Measured Mineral Resource. The confidence in the Modifying Factors applying to a Probable Mineral Reserve is lower than that applying to a Proven Mineral Reserve.

 

 

 

“Proven Mineral Reserve”

 

is the economically mineable part of a Measured Mineral Resource. A Proven Mineral Reserve implies a high degree of confidence in the Modifying Factors.

 

 

 

“tonnes” or “t”

 

means metric tonnes, where 1 tonne = 1,000 kg.

 

 

 

“t/a”

 

means tonnes per annum (year).

 

 

 

“Technical Report”

 

has the meaning given to that term under heading “Description of Mineral Properties — The Maraçãs Menchen Mine”.

 

 

 

“TSX”

 

means the Toronto Stock Exchange.

 

 

 

“V2O5”

 

means vanadium pentoxide, the form vanadium is, generally, converted to following extraction.

 

 

 

“Vanádio”

 

means Vanádio de Maracás S.A., a subsidiary of the Company.

 

 

 

“Vanádio’s Pine Facility”

 

means an up to R$80 million credit facility entered into on March 2, 2016 between Vanádio and Banco Pine, which facility was ultimately repaid in December 2017 pursuant to the Banco Pine Debt Settlement.

 

 

 

“vanadium”

 

vanadium is a naturally occurring chemical element with the symbol “V” and atomic number 23. It is a hard, silvery-grey, ductile, malleable transition metal.

 

A-4

 

“VPURE Flakes”

 

V2O5 flakes, have a guaranteed vanadium content of 98.5% and typical vanadium content of 99.0%.

 

 

 

“VPURE+ Flakes”

 

high purity V2O5 flakes, have a guaranteed vanadium content of 99.0% and a typical vanadium content of 99.9%.

 

 

 

“VPURE+ Powder”

 

V2O5 powder, has a guaranteed vanadium content of 99.0% and a typical vanadium content of 99.9%.

 

References to various elements, where not defined above, have the meaning given to them in the periodic table which is available in the public domain.

 

A-5

 

SCHEDULE B
AUDIT CHARTER

 

CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

 

Largo Resources Ltd.

 

Audit Committee Charter

 

This charter (the “Charter”) sets forth the purpose, composition, responsibilities, duties, powers and authority of the Audit Committee (the “Committee”) of the Board of Directors (the “Board”) of Largo Resources Ltd. (“Largo”).

 

1.                                      PURPOSE

 

1.1                               The purpose of the Committee is to assist the Board in fulfilling its oversight responsibilities with respect to:

 

·                                          financial reporting and disclosure requirements;

 

·                                          ensuring that an effective risk management and financial control framework has been implemented and tested by management of Largo; and

 

·                                          external and internal audit processes.

 

2.                                      COMPOSITION AND MEMBERSHIP

 

2.1                               The Board will appoint the members (“Members”) of the Committee after the annual general meeting of shareholders of Largo. The Members will be appointed to hold office until the next annual general meeting of shareholders of Largo or until their successors are appointed. The Board may remove a Member at any time and may fill any vacancy occurring on the Committee. A Member may resign at any time and a Member will cease to be a Member upon ceasing to be a director.

 

2.2                               The Committee will consist of at least three directors, all of who meet the criteria for financial literacy and who meet the criteria for independence established by applicable laws and the rules of the stock exchange upon which Largo’s securities are listed, including Multilateral Instrument 52-110 - Audit Committees. In addition, each director will be free of any relationship which could, in the view of the Board, reasonably interfere with the exercise of a member’s independent judgment.

 

2.3                               The Board will appoint one of the Members to act as the Chairperson of the Committee. The secretary of Largo (the “Corporate Secretary”) will be the secretary of all meetings and will maintain minutes of all meetings and deliberations of the Committee. In the absence of the Corporate Secretary at any meeting, the Committee will appoint another person who may, but need not, be a Member to be the secretary of that meeting.

 

3.                                      MEETINGS

 

3.1                               Meetings of the Committee will be held at such times and places as the Chairperson may determine, but in any event not less than four (4) times per year. Twenty-four (24) hours advance notice of each meeting will be given to each Member orally, by telephone, by facsimile or email, unless all Members are present and waive notice, or if those absent waive notice before or after a meeting. Members may attend all meetings either in person or by conference call.

 

3.2                               At the request of the external auditors of Largo, the Chief Executive Officer or the Chief Financial Officer of Largo or any member of the Committee, the Chairperson will convene a meeting of the Committee. Any such request will set out in reasonable detail the business proposed to be conducted at the meeting so requested.

 

B-1

 

3.3                               The Chairperson, if present, will act as the Chairperson of meetings of the Committee. If the Chairperson is not present at a meeting of the Committee, then the Members present may select one of their number to act as Chairperson of the meeting.

 

3.4                               Two Members will constitute a quorum for a meeting of the Committee. Each Member will have one vote and decisions of the Committee will be made by an affirmative vote of the majority. The Chairperson will not have a deciding or casting vote in the case of an equality of votes. Powers of the Committee may also be exercised by written resolution signed by all Members.

 

3.5                               The Committee may invite from time to time such persons as it sees fit to attend its meetings and to take part in the discussion and consideration of the affairs of the Committee. The Committee will meet in camera without management at each meeting of the Committee.

 

3.6                               In advance of every regular meeting of the Committee, the Chairperson, with the assistance of the Corporate Secretary, will prepare and distribute to the Members and others, as deemed appropriate by the Chairperson, an agenda of matters to be addressed at the meeting together with appropriate briefing materials. The Committee may require officers and employees of Largo to produce such information and reports as the Committee may deem appropriate in order to fulfill its duties.

 

4.                                      DUTIES AND RESPONSIBILITIES

 

4.1                               The duties and responsibilities of the Committee as they relate to the following matters are to:

 

Financial Reporting and Disclosure

 

4.2                               Review and recommend to the Board for approval, the audited annual financial statements, including the auditors’ report thereon, the quarterly financial statements, management discussion and analysis, financial reports, guidance with respect to earnings per share, and any public release of financial information through press release or otherwise, with such documents to indicate whether such information has been reviewed by the Board or the Committee;

 

4.3                               Review and recommend to the Board for approval, where appropriate, financial information contained in any prospectus, annual information form, annual report to shareholders, management proxy circular, material change disclosure of a financial nature, and similar disclosure documents;

 

4.4                               Review with management of Largo and with external auditors significant accounting principles and disclosure issues and alternative treatments under International Financial Reporting Standards (“IFRS”), all with a view to gaining reasonable assurance that financial statements are accurate, complete and present fairly Largo’s financial position and the results of its operations in accordance with IFRS, as applicable.

 

4.5                               Annually review Largo’s corporate disclosure policy and recommend any proposed changes to the Board for consideration.

 

4.6                               Review the minutes from each meeting of the disclosure committee, established pursuant to Largo’s corporate disclosure policy, since the last meeting of the Committee.

 

4.7                               Review and assess the adequacy and effectiveness of Largo’s system of internal control and management information systems through discussions with management and the external auditor to ensure that Largo maintains:

 

a)                                (the necessary books, records and accounts in sufficient detail to accurately and fairly reflect Largo’s transactions;

 

b)                                effective internal control systems; and

 

B-2

 

c)                                 adequate processes for assessing the risk of material misstatement of the financial statements and for detecting control weaknesses or fraud. From time to time the Committee will assess whether a formal internal audit department is necessary or desirable having regard to the size and stage of development of Largo at any particular time.

 

4.8                               Satisfy itself that management has established adequate procedures for the review of Largo’s disclosure of financial information extracted or derived from Largo’s financial statements.

 

4.9                               Satisfy itself that management has periodically assessed the adequacy of internal controls, systems and procedures in order to ensure compliance with regulatory requirements and recommendations.

 

4.10                        Review and discuss Largo’s major financial risk exposures and the steps taken to monitor and control such exposures, including the use of any financial derivatives and hedging activities.

 

4.11                        Review and assess, and in the Committee’s discretion make recommendations to the Board regarding, the adequacy of Largo’s risk management policies and procedures with regard to identification of Largo’s principal risks and implementation of appropriate systems to manage such risks, including an assessment of the adequacy of insurance coverage maintained by Largo.

 

4.12                        Review and assess annually, and in the Committee’s discretion make recommendations to the Board regarding Largo’s investment policy.

 

External Audit

 

4.13                        Recommend to the Board a firm of external auditors to be engaged by Largo.

 

4.14                        Ensure the external auditors report directly to the Committee on a regular basis.

 

4.15                        Review the independence of the external auditors, including a written report from the external auditors respecting their independence and consideration of applicable auditor independence standards.

 

4.16                        Review and approve the fee, scope and timing of the audit and other related services rendered by the external auditors.

 

4.17                        Review the audit plan of the external auditors prior to the commencement of the audit.

 

4.18                        Establish and maintain a direct line of communication with Largo’s external and internal auditors.

 

4.19                        Meet in camera with only the auditors, with only management, and with only the members of the Committee.

 

4.20                        Review the performance of the external auditors who are accountable to the Committee and the Board as representatives of the shareholders, including the lead partner of the independent auditor’s team.

 

4.21                        Oversee the work of the external auditors appointed by the shareholders of Largo with respect to preparing and issuing an audit report or performing other audit, review or attest services for Largo, including the resolution of issues between management of Largo and the external auditors regarding financial disclosure.

 

4.22                        Review the results of the external audit and the report thereon including, without limitation, a discussion with the external auditors as to the quality of accounting principles used, any alternative treatments of financial information that have been discussed with management of Largo, and the ramifications of their use as well as any other material changes. Review a report describing all material written communication between management and the auditors such as management letters and schedule of unadjusted differences.

 

B-3

 

4.23                        Discuss with the external auditors their perception of Largo’s financial and accounting personnel, records and systems, the cooperation which the external auditors received during their course of their review, and availability of records, data and other requested information and any recommendations with respect thereto.

 

4.24                        Review the reasons for any proposed change in the external auditors which is not initiated by the Committee or Board and any other significant issues related to the change, including the response of the incumbent auditors, and enquire as to the qualifications of the proposed auditors before making its recommendations to the Board.

 

4.25                        Review annually a report from the external auditors in respect of their internal quality-control procedures, any material issues raised by the most recent internal quality-control review, or peer review of the external auditors, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the external auditors, and any steps taken to deal with any such issues.

 

Associated Responsibilities

 

4.26        Monitor and periodically review the whistleblower policy and associated procedures for:

 

a)                                the receipt, retention and treatment of complaints received by Largo regarding accounting, internal accounting controls or auditing matters;

 

b)                                the confidential, anonymous submission by directors, officers and employees of Largo of concerns regarding questionable accounting or auditing matters; and

 

c)                                 any violations of any applicable law, rule or regulation that relates to corporate reporting and disclosure, or violations of Largo’s Code of Business Conduct & Ethics or governance policies.

 

4.27        Review and approve Largo’s hiring policies regarding employees and partners, and former employees and partners, of the present and former external auditor of Largo.

 

Non-Audit Services

 

4.26                        Pre-approve all non-audit services to be provided to Largo or any subsidiary entities by its external auditors or by the external auditors of such subsidiary entities. The Committee may delegate to one or more of its members the authority to pre-approve non-audit services but pre-approval by such member or members so delegated shall be presented to the full audit committee at its first scheduled meeting following such pre-approval.

 

Oversight Function

 

4.27                        While the Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Committee to plan or conduct audits or to determine that Largo’s financial statements are complete and accurate or are in accordance with IFRS and applicable rules and regulations. These are the responsibilities of Management and the external auditors. The Committee, the Chairperson and any Members identified as having accounting or related financial expertise are members of the Board, appointed to the Committee to provide broad oversight of the financial, risk and control related activities of Largo, and are specifically not accountable or responsible for the day to day operation or performance of such activities. Although the designation of a Member as having accounting or related financial expertise for disclosure purposes is based on that individual’s education and experience, which that individual will bring to bear in carrying out his or her duties on the Committee, such designation does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the Committee and Board in the absence of such designation. Rather, the role of a Member who is identified as having accounting or related financial expertise, like the role of all Members, is to oversee the process, not to certify or guarantee the internal or external audit of Largo’s financial information or public disclosure.

 

B-4

 

5.                                      REPORTING

 

5.1                               The Chairperson will report to the Board at each Board meeting on the Committee’s activities since the last Board meeting. The Committee will annually review and approve the Committee’s report for inclusion in the management proxy circular. The Corporate Secretary will circulate the minutes of each meeting of the Committee to the members of the Board.

 

6.                                      ACCESS TO INFORMATION AND AUTHORITY

 

6.1                               The Committee will be granted unrestricted access to all information regarding Largo and all directors, officers and employees will be directed to cooperate as requested by members of the Committee. The Committee has the authority to retain, at Largo’s expense, independent legal, financial and other advisors, consultants and experts, to assist the Committee in fulfilling its duties and responsibilities. The Committee also has the authority to communicate directly with internal and external auditors.

 

7.                                      REVIEW OF CHARTER

 

7.1                               The Committee will annually review and assess the adequacy of this Charter and recommend any proposed changes to the Board for consideration.

 

B-5

Exhibit 99.13

 

FORM 52-109F1R

 

CERTIFICATION OF REFILED ANNUAL FILINGS

 

This certificate is being filed on the same date that LARGO RESOURCES LTD. (the “issuer”) has refiled its Annual Information Form (“AIF”) for the financial year period ending December 31, 2019.

 

I, Paulo Misk, Chief Executive Officer of LARGO RESOURCES LTD., certify the following:

 

1.                                      Review: I have reviewed the AIF, if any, annual financial statements and annual MD&A, including, for greater certainty, all documents and information that are incorporated by reference in the AIF (together, the “annual filings”) of the issuer for the financial year ended December 31, 2019.

 

2.                                      No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the annual filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, for the period covered by the annual filings.

 

3.                                      Fair presentation: Based on my knowledge, having exercised reasonable diligence, the annual financial statements together with the other financial information included in the annual filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the annual filings.

 

4.                                      Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

 

5.                                      Design: Subject to the limitations, if any, described in paragraphs 0 and 0, the issuer’s other certifying officer(s) and I have, as at the financial year end

 

(a)                                 designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

 

(i)                                     material information relating to the issuer is made known to us by others, particularly during the period in which the annual filings are being prepared; and

 

(ii)                                  information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

 

(b)                                 designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

 

5.1                                     Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Internal Control — Integrated Framework (2013 COSO Framework) published by The Committee of Sponsoring Organizations of the Treadway Commission.

 

5.2                                     N/A

 

 

5.3                                     N/A

 

6.                                            Evaluation: The issuer’s other certifying officer(s) and I have

 

(a)                                 evaluated, or caused to be evaluated under our supervision, the effectiveness of the issuer’s DC&P at the financial year end and the issuer has disclosed in its annual MD&A our conclusions about the effectiveness of DC&P at the financial year end based on that evaluation; and

 

(b)                                 evaluated, or caused to be evaluated under our supervision, the effectiveness of the issuer’s ICFR at the financial year end and the issuer has disclosed in its annual MD&A

 

(i)                                     our conclusions about the effectiveness of ICFR at the financial year end based on that evaluation; and

 

(ii)                                  N/A

 

7.                                            Reporting changes in ICFR: The issuer has disclosed in its annual MD&A any change in the issuer’s ICFR that occurred during the period beginning on January 1, 2019 and ended on December 31, 2019 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

 

8.                                            Reporting to the issuer’s auditors and board of directors or audit committee: The issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of ICFR, to the issuer’s auditors, and the board of directors or the audit committee of the board of directors any fraud that involves management or other employees who have a significant role in the issuer’s ICFR.

 

Date: March 23, 2020

 

“Paulo Misk”

 

 

 

Paulo Misk

 

Chief Executive Officer

 

 

2

Exhibit 99.14

 

FORM 52-109F1R

 

CERTIFICATION OF REFILED ANNUAL FILINGS

 

This certificate is being filed on the same date that LARGO RESOURCES LTD. (the “issuer”) has refiled its Annual Information Form (“AIF”) for the financial year period ending December 31, 2019.

 

I, Ernest Cleave, Chief Financial Officer of LARGO RESOURCES LTD., certify the following:

 

1.                                      Review: I have reviewed the AIF, if any, annual financial statements and annual MD&A, including, for greater certainty, all documents and information that are incorporated by reference in the AIF (together, the “annual filings”) of the issuer for the financial year ended December 31, 2019.

 

2.                                      No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the annual filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, for the period covered by the annual filings.

 

3.                                      Fair presentation: Based on my knowledge, having exercised reasonable diligence, the annual financial statements together with the other financial information included in the annual filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the annual filings.

 

4.                                      Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

 

5.                                      Design: Subject to the limitations, if any, described in paragraphs 0 and 0, the issuer’s other certifying officer(s) and I have, as at the financial year end

 

(a)                                 designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

 

(i)                                     material information relating to the issuer is made known to us by others, particularly during the period in which the annual filings are being prepared; and

 

(ii)                                  information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

 

(b)                                 designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

 

5.1                               Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Internal Control — Integrated Framework (2013 COSO Framework) published by The Committee of Sponsoring Organizations of the Treadway Commission.

 

5.2                               N/A

 

 

5.3                               N/A

 

6.                                      Evaluation: The issuer’s other certifying officer(s) and I have

 

(a)                                 evaluated, or caused to be evaluated under our supervision, the effectiveness of the issuer’s DC&P at the financial year end and the issuer has disclosed in its annual MD&A our conclusions about the effectiveness of DC&P at the financial year end based on that evaluation; and

 

(b)                                 evaluated, or caused to be evaluated under our supervision, the effectiveness of the issuer’s ICFR at the financial year end and the issuer has disclosed in its annual MD&A

 

(i)                                     our conclusions about the effectiveness of ICFR at the financial year end based on that evaluation; and

 

(ii)                                  N/A

 

7.                                      Reporting changes in ICFR: The issuer has disclosed in its annual MD&A any change in the issuer’s ICFR that occurred during the period beginning on January 1, 2019 and ended on December 31, 2019 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

 

8.                                      Reporting to the issuer’s auditors and board of directors or audit committee: The issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of ICFR, to the issuer’s auditors, and the board of directors or the audit committee of the board of directors any fraud that involves management or other employees who have a significant role in the issuer’s ICFR.

 

Date: March 23, 2020

 

“Ernest Cleave”

 

 

 

Ernest Cleave

 

Chief Financial Officer

 

 

2

Exhibit 99.15

 

GRAPHIC

 

LARGO RESOURCES LTD.

 

UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

 

(Expressed in thousands / 000’s of Canadian dollars)

 

 

TABLE OF CONTENTS

 

Condensed Interim Consolidated Statements of Financial Position

1

 

 

 

Condensed Interim Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)

2

 

 

 

Condensed Interim Consolidated Statements of Changes in Equity

3

 

 

 

Condensed Interim Consolidated Statements of Cash Flows

4

 

 

 

Notes to the Unaudited Condensed Interim Consolidated Financial Statements

5

 

 

 

1)

Nature of operations

5

 

 

 

2)

Statement of compliance

5

 

 

 

3)

Basis of preparation and significant accounting policies

5

 

 

 

4)

Amounts receivable

6

 

 

 

5)

Inventory

6

 

 

 

6)

Vanadium products

6

 

 

 

7)

Mine properties, plant and equipment

6

 

 

 

8)

Leases

7

 

 

 

9)

Accounts payable and accrued liabilities

8

 

 

 

10)

Debt

8

 

 

 

11)

Issued capital

9

 

 

 

12)

Equity reserves

9

 

 

 

13)

Earnings (loss) per share

11

 

 

 

14)

Taxes

11

 

 

 

15)

Related party transactions

12

 

 

 

16)

Segmented disclosure

12

 

 

 

17)

Commitments and contingencies

17

 

 

 

18)

Financial instruments

17

 

 

 

19)

Revenues

17

 

 

 

20)

Expenses

17

 

 

 

21)

Subsequent events

17

 

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

 

 

 

 

As at

 

 

 

Notes

 

March 31,
2020

 

December 31,
2019

 

Assets

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

Cash

 

 

 

$

206,137

 

$

166,077

 

Restricted cash

 

 

 

—

 

99

 

Amounts receivable

 

4

 

8,055

 

8,019

 

Inventory

 

5

 

16,810

 

23,445

 

Vanadium products

 

6

 

5,343

 

4,227

 

Prepaid expenses

 

 

 

2,148

 

2,125

 

Total Current Assets

 

 

 

238,493

 

203,992

 

Non-current Assets

 

 

 

 

 

 

 

Deferred income tax

 

14(c)

 

12,206

 

13,783

 

Mine properties, plant and equipment

 

7

 

211,117

 

248,343

 

Total Non-current Assets

 

 

 

223,323

 

262,126

 

Total Assets

 

 

 

$

461,816

 

$

466,118

 

Liabilities

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

9

 

$

86,018

 

$

101,360

 

Current portion of provisions

 

 

 

523

 

619

 

Debt

 

10

 

35,210

 

—

 

Total Current Liabilities

 

 

 

121,751

 

101,979

 

Non-current Liabilities

 

 

 

 

 

 

 

Provisions

 

17

 

8,754

 

9,572

 

Total Non-current Liabilities

 

 

 

8,754

 

9,572

 

Total Liabilities

 

 

 

130,505

 

111,551

 

Equity

 

 

 

 

 

 

 

Issued capital

 

11

 

440,727

 

437,937

 

Equity reserves

 

12

 

18,645

 

19,447

 

Accumulated other comprehensive loss

 

 

 

(69,994

)

(38,744

)

Deficit

 

 

 

(58,067

)

(64,073

)

Total Equity

 

 

 

331,311

 

354,567

 

Total Liabilities and Equity

 

 

 

$

461,816

 

$

466,118

 

 

Commitments and contingencies

7, 17

 

 

 

Subsequent events

21

 

 

 

 

—The accompanying notes form an integral part of the consolidated financial statements—

 

Unaudited Condensed Interim Consolidated Financial Statements For The Three Months Ended March 31, 2020 and 2019

 

1

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)

 

 

 

 

 

Three Months ended March 31,

 

 

 

Notes

 

2020

 

2019

 

Revenues

 

19

 

$

58,186

 

$

44,314

 

Other gains (losses)

 

6

 

(523

)

—

 

 

 

 

 

57,663

 

44,314

 

Expenses

 

 

 

 

 

 

 

Operating costs

 

20

 

(36,423

)

(29,071

)

Professional, consulting and management fees

 

 

 

(2,289

)

(2,818

)

Foreign exchange loss

 

 

 

(12,189

)

(317

)

Other general and administrative expenses

 

 

 

(1,175

)

(1,108

)

Share-based payments

 

12

 

(547

)

(1,524

)

Finance costs

 

20

 

(173

)

(7,283

)

Interest income

 

 

 

890

 

184

 

Exploration and evaluation costs

 

 

 

(665

)

(963

)

 

 

 

 

(52,571

)

(42,900

)

Net income before tax

 

 

 

$

5,092

 

$

1,414

 

Income tax expense

 

14(a)

 

—

 

(1,114

)

Deferred income tax recovery (expense)

 

14(a)

 

642

 

(2,468

)

Net income (loss)

 

 

 

$

5,734

 

$

(2,168

)

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

Items that subsequently will be reclassified to operations:

 

 

 

 

 

 

 

Unrealized loss on foreign currency translation

 

 

 

(31,250

)

(10,424

)

Comprehensive income (loss)

 

 

 

$

(25,516

)

$

(12,592

)

Basic earnings (loss) per Common Share

 

13

 

$

0.01

 

$

(0.00

)

Diluted earnings (loss) per Common Share

 

13

 

$

0.01

 

$

(0.00

)

Weighted Average Number of Shares Outstanding (in 000’s)

 

 

 

 

 

 

 

- Basic

 

 

 

560,745

 

527,239

 

- Diluted

 

 

 

624,353

 

527,239

 

 

—The accompanying notes form an integral part of the consolidated financial statements—

 

2

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

 

 

Shares

 

Issued Capital

 

Equity Reserves

 

Accumulated Other 
Comprehensive Loss

 

Deficit

 

Shareholders’ Equity

 

Balance at December 31, 2018

 

529,126

 

$

415,259

 

$

25,853

 

$

(18,904

)

$

(29,481

)

$

392,727

 

Grant of share options

 

—

 

—

 

847

 

—

 

—

 

847

 

Grant of restricted share units

 

—

 

—

 

 396

 

—

 

—

 

396

 

Share-based payments

 

—

 

—

 

281

 

—

 

—

 

281

 

Exercise of warrants

 

85

 

125

 

(34

)

—

 

—

 

91

 

Exercise of share options

 

438

 

431

 

(153

)

—

 

—

 

278

 

Expiry of share options

 

—

 

—

 

(241

)

—

 

241

 

—

 

Currency translation adjustment

 

—

 

—

 

—

 

 (10,424

)

—

 

(10,424

)

Net loss for the period

 

—

 

—

 

—

 

—

 

 (2,168

)

(2,168

)

Balance at March 31, 2019

 

529,649

 

$

415,815

 

$

26,949

 

$

(29,328

)

$

(31,408

)

$

382,028

 

Grant of restricted share units

 

—

 

—

 

2,080

 

—

 

—

 

2,080

 

Share-based payments

 

—

 

—

 

1,112

 

—

 

—

 

1,112

 

Exercise of warrants

 

21,091

 

17,673

 

(6,268

)

—

 

—

 

11,405

 

Exercise of share options

 

2,810

 

2,299

 

(897

)

—

 

—

 

1,402

 

Exercise of restricted share units

 

984

 

2,150

 

(2,150

)

—

 

—

 

—

 

Expiry of warrants

 

—

 

—

 

(93

)

—

 

93

 

—

 

Expiry of share options

 

—

 

—

 

(1,286

)

—

 

1,286

 

—

 

Currency translation adjustment

 

—

 

—

 

—

 

(9,416

)

—

 

(9,416

)

Net loss for the period

 

—

 

—

 

—

 

—

 

(34,044

)

(34,044

)

Balance at December 31, 2019

 

554,534

 

$

437,937

 

$

19,447

 

$

(38,744

)

$

(64,073

)

$

354,567

 

Grant of share options

 

—

 

—

 

377

 

—

 

—

 

377

 

Grant of restricted share units

 

—

 

—

 

 23

 

—

 

—

 

23

 

Share-based payments

 

—

 

—

 

147

 

—

 

—

 

147

 

Exercise of warrants

 

8,240

 

2,176

 

(463

)

—

 

—

 

1,713

 

Exercise of restricted share units

 

202

 

614

 

(614

)

—

 

—

 

—

 

Expiry of warrants

 

—

 

—

 

(210

)

—

 

210

 

—

 

Expiry of share options

 

—

 

—

 

(62

)

—

 

62

 

—

 

Currency translation adjustment

 

—

 

—

 

—

 

 (31,250

)

—

 

(31,250

)

Net income for the period

 

—

 

—

 

—

 

—

 

 5,734

 

5,734

 

Balance at March 31, 2020

 

562,976

 

$

440,727

 

$

18,645

 

$

(69,994

)

$

(58,067

)

$

331,311

 

 

—The accompanying notes form an integral part of the consolidated financial statements—

 

3

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

Three Months ended
March 31,

 

 

 

Notes

 

2020

 

2019

 

Operating Activities

 

 

 

 

 

 

 

Net income (loss) for the period

 

 

 

$

5,734

 

$

(2,168

)

Adjustment for Non-cash Items

 

 

 

 

 

 

 

Other (gains) losses

 

6

 

523

 

—

 

Depreciation

 

 

 

8,945

 

7,290

 

Share-based payments

 

12

 

547

 

1,524

 

Unrealized foreign exchange (gain) loss

 

 

 

(2,756

)

5,107

 

Finance costs

 

20

 

173

 

7,283

 

Interest income

 

 

 

(890

)

(184

)

Income tax expense

 

14(a)

 

—

 

1,114

 

Deferred income tax (recovery) expense

 

14(a)

 

(642

)

2,468

 

Income tax paid

 

 

 

—

 

(746

)

Cash Provided Before Non-cash Working Capital Items

 

 

 

11,634

 

21,688

 

Change in amounts receivable

 

 

 

(1,291

)

59,421

 

Change in inventory

 

 

 

2,698

 

(3,035

)

Change in vanadium products

 

 

 

(1,784

)

—

 

Change in prepaid expenses

 

 

 

(266

)

(3,390

)

Change in accounts payable and accrued liabilities

 

 

 

631

 

20,732

 

Net Cash Provided by Operating Activities

 

 

 

11,622

 

95,416

 

Financing Activities

 

 

 

 

 

 

 

Receipt of debt

 

10

 

33,183

 

—

 

Repayment of long-term debt

 

10

 

—

 

(86,611

)

Debt issue costs, interest and other associated fees paid

 

 

 

—

 

(6,209

)

Interest income

 

 

 

775

 

71

 

Change in restricted cash

 

 

 

99

 

21

 

Issuance of common shares and warrants

 

11(b)

 

1,713

 

369

 

Net Cash Provided by (Used in) Financing Activities

 

 

 

35,770

 

(92,359

)

Investing Activities

 

 

 

 

 

 

 

Mine properties, plant and equipment expenditures

 

 

 

(4,424

)

(8,202

)

Net Cash (Used in) Investing Activities

 

 

 

(4,424

)

(8,202

)

Effect of foreign exchange on cash

 

 

 

(2,908

)

(10,343

)

Net Change in Cash

 

 

 

40,060

 

(15,488

)

Cash position — beginning of the period

 

 

 

166,077

 

206,188

 

Cash Position — end of the period

 

 

 

$

206,137

 

$

190,700

 

 

—The accompanying notes form an integral part of the consolidated financial statements—

 

4

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

1)        Nature of operations

 

Largo Resources Ltd. (the “Company”) is engaged in the acquisition, exploration, development and operation of mining and exploration properties located in Brazil and Canada. Substantially all of the Company’s efforts are devoted to operating and expanding the Maracás Menchen Mine. While the Company’s Maracás Menchen Mine has reached commercial production, future changes in market conditions and feasibility estimates could result in the Company’s mineral resources not being economically recoverable.

 

The Company is a corporation governed by the Business Corporations Act (Ontario) and domiciled in Canada whose shares are listed on the Toronto Stock Exchange (“TSX”). The head office, principal address and records office of the Company are located at 55 University Avenue, Suite 1105, Toronto, Ontario, Canada M5J 2H7.

 

2)        Statement of compliance

 

These unaudited condensed interim consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) in accordance with International Accounting Standard (“IAS”) 34, Interim Financial Reporting.

 

The unaudited condensed interim consolidated financial statements were approved by the Board of Directors of the Company on May 12, 2020.

 

3)        Basis of preparation and significant accounting policies

 

The basis of presentation, and accounting policies and methods of their application in these unaudited condensed interim consolidated financial statements, including comparatives, are consistent with those used in the Company’s audited annual consolidated financial statements for the year ended December 31, 2019 and should be read in conjunction with those statements.

 

These unaudited condensed interim consolidated financial statements are presented in thousands of Canadian dollars, unless otherwise noted.  References to the symbol “R$” mean the Brazilian real, the official currency of Brazil, and references to the symbol “US$” mean the U.S. dollar.

 

a)                 Critical judgements and estimation uncertainties

 

The preparation of unaudited condensed interim consolidated financial statements in conformity with IFRS requires the Company’s management to make judgments, estimates and assumptions about the carrying amount of its assets and liabilities that are not readily apparent from other sources. These estimates and assumptions are disclosed in note 4(d) of the Company’s audited annual consolidated financial statements for the year ended December 31, 2019. There have been no significant changes to the areas of estimation and judgment during the three months ended March 31, 2020.

 

b)                 Significant accounting policies

 

These unaudited condensed interim consolidated financial statements, including comparatives, have been prepared following the same accounting policies and methods of computation as the audited annual consolidated financial statements for the year ended December 31, 2019.

 

5

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

4)        Amounts receivable

 

 

 

March 31,
2020

 

December 31,
2019

 

Current taxes recoverable — Brazil

 

$

7,769

 

$

7,719

 

Current taxes recoverable — Canada

 

61

 

53

 

Other receivables

 

225

 

247

 

Total

 

$

8,055

 

$

8,019

 

 

At March 31, 2020, the Company’s trade receivables was in a liability position of $75,843 and was classified as trade payables (refer to notes 9 and 18(a)) (December 31, 2019 — trade payables of $87,782).

 

5)        Inventory

 

 

 

March 31,
2020

 

December 31,
2019

 

Vanadium flake

 

$

3,169

 

$

7,349

 

Work-in-process

 

1,798

 

2,632

 

Stockpiles

 

1,561

 

1,843

 

Warehouse materials

 

10,282

 

11,621

 

Total

 

$

16,810

 

$

23,445

 

 

6)        Vanadium products

 

During the three months ended March 31, 2020, the Company purchased and sold ferrovanadium and vanadium pentoxide for a total net cost of US$1,001 ($1,321) (three months ended March 31, 2019 — US$nil).

 

Vanadium products are measured at fair value based on Level 2 fair value inputs. At March 31, 2020, the Company remeasured its vanadium products at a fair value of US$3,767 ($5,343) (December 31, 2019 — US$3,258 ($4,227)), using an average ferrovanadium price of between US$22.75 and US$24.36 per kilogram (December 31, 2019 — between US$22.23 and US$23.92 per kilogram) and an average vanadium pentoxide price of approximately US$12.30 per kilogram (US$5.58 per pound) (December 31, 2019 — US$11.74 per kilogram, US$5.33 per pound). During the three months ended March 31, 2020, the Company recognized other gains (losses) of $(523) (three months ended March 31, 2019 — $nil) relating to realized and unrealized gains and losses on its vanadium products.

 

7)        Mine properties, plant and equipment

 

At March 31, 2020 and December 31, 2019, the Company’s economic interest in the Maracás Menchen Mine totalled 99.94%. The remaining 0.06% economic interest is held by Companhia Baiana de Pesquisa Mineral (“CBPM”) owned by the state of Bahia. CBPM retains a 3% net smelter royalty (“NSR”) in the Maracás Menchen Mine. The property is also subject to a royalty of 2% on certain operating costs under the Brazilian Mining Act. Under a separate agreement, Anglo Pacific Plc receives a 2% NSR in the Maracás Menchen Mine.

 

The net book value of the Company’s mine properties, plant and equipment at March 31, 2020 by geographic location is: Brazil - $185,079 (December 31, 2019 - $221,969); Canada - $26,038 (December 31, 2019 - $26,374).

 

6

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Office and 
Computer
Equipment

 

Vehicles

 

Mine 
Properties

 

Machinery
and
Equipment

 

Construction
In Progress

 

Total

 

COST

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

 

$

1,208

 

$

476

 

$

128,119

 

$

231,379

 

$

6,868

 

$

368,050

 

Additions

 

279

 

—

 

11,292

 

5,577

 

38,363

 

55,511

 

Tax credits

 

—

 

—

 

—

 

(3,579

)

—

 

(3,579

)

Disposals

 

(130

)

—

 

—

 

(3,602

)

—

 

(3,732

)

Reclassifications

 

—

 

—

 

—

 

31,040

 

(31,040

)

—

 

Effects of changes in foreign exchange rates

 

(80

)

(38

)

(7,946

)

(18,480

)

(2,332

)

(28,876

)

Balance at December 31, 2019

 

$

1,277

 

$

438

 

$

131,465

 

$

242,335

 

$

11,859

 

$

387,374

 

Additions

 

22

 

—

 

3,416

 

621

 

539

 

4,598

 

Reclassifications

 

—

 

—

 

—

 

11,556

 

(11,556

)

—

 

Effects of changes in foreign exchange rates

 

(163

)

(68

)

(15,016

)

(39,119

)

(507

)

(54,873

)

Balance at March 31, 2020

 

$

1,136

 

$

370

 

$

119,865

 

$

215,393

 

$

335

 

$

337,099

 

ACCUMULATED DEPRECIATION

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

 

$

718

 

$

476

 

$

26,005

 

$

93,398

 

$

—

 

$

120,597

 

Depreciation

 

140

 

—

 

8,033

 

22,807

 

—

 

30,980

 

Disposals

 

(130

)

—

 

—

 

(3,602

)

—

 

(3,732

)

Effects of changes in foreign exchange rates

 

(46

)

(38

)

(503

)

(8,227

)

—

 

(8,814

)

Balance at December 31, 2019

 

$

682

 

$

438

 

$

33,535

 

$

104,376

 

$

—

 

$

139,031

 

Depreciation

 

40

 

—

 

1,663

 

6,470

 

—

 

8,173

 

Effects of changes in foreign exchange rates

 

(99

)

(68

)

(4,059

)

(16,996

)

—

 

(21,222

)

Balance at March 31, 2020

 

$

623

 

$

370

 

$

31,139

 

$

93,850

 

$

—

 

$

125,982

 

NET BOOK VALUE

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2019

 

$

595

 

$

—

 

$

97,930

 

$

137,959

 

$

11,859

 

$

248,343

 

At March 31, 2020

 

$

513

 

$

—

 

$

88,726

 

$

121,543

 

$

335

 

$

211,117

 

 

8)        Leases

 

At March 31, 2020 and December 31, 2019, the Company did not have any right-of-use assets or lease liabilities.

 

 

 

Three months ended

 

 

 

March 31,
2020

 

March 31,
2019

 

Recognized in the condensed interim consolidated statements of income (loss) and comprehensive income (loss):

 

 

 

 

 

Expenses relating to short-term leases

 

$

4,234

 

$

4,699

 

 

 

 

 

 

 

Recognized in the condensed interim consolidated statement of cash flows

 

 

 

 

 

Total cash outflow for leases

 

$

3,924

 

$

4,334

 

 

7

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

9)        Accounts payable and accrued liabilities

 

 

 

March 31,
2020

 

December 31,
2019

 

Trade payables

 

$

75,843

 

$

87,782

 

Accounts payable

 

7,542

 

10,067

 

Accrued liabilities

 

2,060

 

3,077

 

Accrued financial costs

 

30

 

—

 

Other taxes

 

543

 

434

 

Total

 

$

86,018

 

$

101,360

 

 

At March 31, 2020, the Company’s trade receivables was in a liability position of $75,843 and was classified as trade payables (December 31, 2019 — trade payables of $87,782 (refer to note 18(a))).

 

10)          Debt

 

 

 

March 31,
2020

 

December 31,
2019

 

Total debt

 

$

35,210

 

$

—

 

 

 

 

 

 

 

 

Non-cash

 

 

 

 

 

 

 

 

 

Foreign 

 

 

 

 

 

December 31,

 

Cash flows

 

exchange 

 

March 31,

 

 

 

2019

 

Proceeds

 

movement

 

2020

 

Total debt

 

$

—

 

$

33,183

 

$

2,027

 

$

35,210

 

Total liabilities from financing activities

 

$

—

 

$

33,183

 

$

2,027

 

$

35,210

 

 

 

 

 

 

 

 

Non-cash

 

 

 

 

 

 

 

 

 

Foreign 

 

 

 

 

 

December 31,

 

Cash flows

 

exchange 

 

December 31,

 

 

 

2018

 

Repayment

 

movement

 

2019

 

Total debt(1)

 

$

126,503

 

$

(124,994

)

$

(1,509

)

$

—

 

Total liabilities from financing activities

 

$

126,503

 

$

(124,994

)

$

(1,509

)

$

—

 

 

(1)    The gross amount excludes unamortized deferred transaction costs.

 

Credit facilities

 

On March 18, 2020, the Company secured a US$13,000 credit facility with a bank in Brazil. This facility was fully drawn down and proceeds of R$65,980 ($17,403) were received on March 20, 2020. This facility is due to be repaid as a lump sum payment on March 12, 2021, together with accrued interest at a rate of 3.35% per annum.

 

On March 24, 2020 the Company secured a US$11,788 credit facility with a second bank in Brazil. This facility was fully drawn down and proceeds of R$60,000 ($15,780) were received on March 24, 2020. This facility is due to be repaid as a lump sum payment on March 18, 2021, together with accrued interest at a rate of 6.29% per annum.

 

Senior secured notes

 

On May 22, 2018, the Company completed a private placement of US$150,000 ($191,790) aggregate principal amount of senior secured notes due in 2021 (the “Notes”). The Notes were callable in years 2 and 3 and had an interest rate of 9.25% per annum, paid on a semi-annual basis in arrears on December 1 and June 1 each year, beginning on December 1, 2018. The terms of the Notes allowed the Company to redeem all or part of the Notes at varying redemption prices and established certain restrictive covenants.

 

8

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

On January 28, 2019 and February 19, 2019, the Company completed the purchase and cancellation of US$59,221 and US$4,490 in aggregate principal amounts of Notes outstanding. The Notes were purchased at a price equal to 105.625% per principal amount of the Notes redeemed plus accrued and unpaid interest up to January 28, 2019 and February 15, 2019, respectively.

 

On May 3, 2019, the Company made an excess cash flow offer to purchase all of its outstanding Notes at that time of US$29,101 at a purchase price of 103% of the principal amount thereof plus accrued and unpaid interest to, but not including, the purchase date. The offer was required to be made in accordance with the terms of the Notes and following this offer, US$6,736 of the Notes were repurchased and cancelled.

 

On June 10, 2019, the Company announced that it had elected to redeem the remaining outstanding Notes. The Notes were redeemed on July 8, 2019 at a price equal to 104.625% of the principal amount of the Notes plus accrued and unpaid interest to, but not including, the redemption date. The total amount paid was US$23,606 ($30,905), including the principal amount of Notes outstanding of US$22,365 ($29,280).

 

Following this redemption on July 8, 2019, the balance of the Notes outstanding was $nil.

 

11)          Issued capital

 

a)             Authorized

 

Unlimited common shares without par value.

 

b)             Issued

 

 

 

Three months ended
March 31, 2020

 

Year ended
December 31, 2019

 

 

 

Number of 
Shares

 

Stated
Value

 

Number of 
Shares

 

Stated
Value

 

Balance, beginning of the period

 

554,534

 

$

437,937

 

529,126

 

$

415,259

 

Exercise of warrants (note 12)

 

8,240

 

2,176

 

21,176

 

17,798

 

Exercise of share options (note 12)

 

—

 

—

 

3,248

 

2,730

 

Exercise of restricted share units (note 12)

 

202

 

614

 

984

 

2,150

 

Balance, end of the period

 

562,976

 

$

440,727

 

554,534

 

$

437,937

 

 

12)          Equity reserves

 

Under the Company’s incentive share compensation plan, the Company has issued options and restricted share units (“RSUs”) approximating 1.17% of its issued and outstanding capital at March 31, 2020.

 

During the three months ended March 31, 2020, the Company recognized a share-based payment expense related to the grant and vesting of share options and RSUs of $547 (three months ended March 31, 2019 —  $1,524) for share options and RSUs granted to the Company’s directors, officers, employees and consultants. The total share-based payment expense was charged to operations.

 

During the three months ended March 31, 2020, 2,707 warrants were exercised resulting in proceeds to the Company of $1,713, with 129 warrants surrendered as part of cashless exercises. 5,533 shares were issued in connection with a warrant exercise in 2019.

 

During the year ended December 31, 2019, 26,709 warrants were exercised resulting in proceeds to the Company of $11,496, with 10,907 warrants surrendered as part of cashless exercises. In addition, 3,248 stock options were exercised resulting in proceeds to the Company of $1,680.

 

The Company applies the fair value method of accounting for share-based payment awards. The Company estimated the expected volatility using historical volatilities from the Company’s traded common shares when estimating the fair value of stock options granted, as it believes that this methodology best reflects the expected future volatility of its stock.

 

9

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

RSUs

 

Options

 

Warrants

 

 

 

 

 

Number

 

Value

 

Number

 

Weighted
average 
exercise 
price

 

Value

 

Number

 

Weighted
average 
exercise 
price

 

Value

 

Total 
value

 

December 31, 2018

 

791

 

$

425

 

6,958

 

$

0.82

 

$

2,830

 

146,202

 

$

0.48

 

$

22,598

 

$

25,853

 

Share-based payments

 

—

 

1,393

 

—

 

—

 

—

 

—

 

—

 

—

 

1,393

 

Granted

 

1,017

 

2,490

 

370

 

3.04

 

847

 

—

 

—

 

—

 

3,337

 

Forfeited

 

(16

)

(14

)

—

 

—

 

—

 

—

 

—

 

—

 

(14

)

Exercised

 

(984

)

(2,150

)

(3,248

)

(0.52

)

(1,050

)

(37,616

)

(0.64

)

(6,302

)

(9,502

)

Expired

 

—

 

—

 

(933

)

(2.28

)

(1,527

)

(484

)

(0.65

)

(93

)

(1,620

)

December 31, 2019

 

808

 

$

2,144

 

3,147

 

$

0.96

 

$

1,100

 

108,102

 

$

0.42

 

$

16,203

 

$

19,447

 

Share-based payments

 

—

 

147

 

—

 

—

 

—

 

—

 

—

 

—

 

147

 

Granted

 

1,799

 

23

 

3,828

 

0.67

 

377

 

—

 

—

 

—

 

400

 

Exercised

 

(202

)

(614

)

—

 

—

 

—

 

(2,836

)

(0.65

)

(463

)

(1,077

)

Expired

 

—

 

—

 

(200

)

(0.46

)

(62

)

(1,272

)

(0.65

)

(210

)

(272

)

March 31, 2020

 

2,405

 

$

1,700

 

6,775

 

$

0.81

 

$

1,415

 

103,994

 

$

0.41

 

$

15,530

 

$

18,645

 

 

a)             RSUs

 

During the three months ended March 31, 2020, the Company granted 1,799 RSUs to officers and employees of the Company (year ended December 31, 2019 — 1,017 RSUs). These RSUs vest over time, with one-third vesting during each of the three month periods ending March 31, 2021, March 31, 2022 and March 31, 2023. The value of the vested RSUs includes the Company’s expected forfeiture rate of 0%. Upon vesting, the RSUs provide the holders with common shares of the Company.

 

b)             Stock options

 

Range of prices

 

No. outstanding

 

No. exercisable

 

Weighted
average
remaining
life (years)

 

Weighted
average
exercise
price

 

Weighted
average
grant date
share price

 

$0.46 – 1.00

 

6,170

 

3,092

 

3.5

 

$

0.62

 

$

0.62

 

2.01 – 2.50

 

285

 

285

 

3.4

 

2.40

 

2.40

 

3.01 – 3.04

 

320

 

320

 

3.8

 

3.04

 

3.04

 

 

 

6,775

 

3,697

 

 

 

 

 

 

 

 

The remaining weighted average contractual life of options outstanding at March 31, 2020 was 3.5 years (December 31, 2019 — 1.9 years).

 

During the three months ended March 31, 2020, the Company granted 3,828 (year ended December 31, 2019 — 370) stock options to its directors, officers, employees and consultants with a weighted average exercise price of $0.67.  750 of the stock options vested immediately and are exercisable for a period of 5 years from the date of grant. The remainder vest over time, with one-third vesting during each of the three month periods ending March 31, 2021, March 31, 2022 and March 31, 2023. The estimated weighted average grant date fair value of the stock options was $0.48 per stock option, as determined using the Black-Scholes valuation model and the following assumptions: risk free interest rate — 0.74%, expected life in years — 5, expected volatility — 93.7%, expected dividends — 0% and expected forfeiture rate — 0%.

 

10

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

c)              Warrants

 

No.
outstanding

 

No.
exercisable

 

Grant
Date

 

Expiry
Date

 

Exercise
 price

 

Estimated 
fair value 
at grant 
date

 

Expected
volatility

 

Expected
 life
(years)

 

Expected
dividend
yield

 

Risk-
free
Interest
rate

 

25,502

 

25,502

 

29-Jan-16

 

28-Jan-21

 

$

0.29

 

$

2,511

 

129

%

5.00

 

0

%

0.67

%

63,078

 

63,078

 

2-Mar-16

 

2-Mar-21

 

$

0.29

 

$

6,574

 

132

%

5.00

 

0

%

0.68

%

400

 

400

 

11-Apr-17

 

31-Dec-20

 

$

0.50

 

$

128

 

94

%

3.75

 

0

%

0.96

%

3,538

 

3,538

 

1-Dec-17

 

1-Dec-22

 

$

1.15

 

$

1,521

 

93

%

5.00

 

0

%

1.63

%

11,476

 

11,476

 

13-Dec-17

 

13-Dec-22

 

$

1.15

 

$

4,796

 

93

%

5.00

 

0

%

1.65

%

103,994

 

103,994

 

 

 

 

 

$

0.41

 

$

15,530

 

 

 

 

 

 

 

 

 

 

13)          Earnings (loss) per share

 

The total number of shares issuable from options, warrants and RSUs that are excluded from the computation of diluted earnings per share because their effect would be anti-dilutive was 605 for the three months ended March 31, 2020 (three months ended March 31, 2019 — 154,695).

 

14)          Taxes

 

a)             Tax recovery (expense)

 

 

 

Three months ended

 

 

 

March 31,
2020

 

March 31,
2019

 

Income tax expense

 

$

—

 

$

(1,114

)

Deferred income tax recovery (expense)

 

642

 

(2,468

)

Total

 

$

642

 

$

(3,582

)

 

b)                 Changes in deferred tax assets and liabilities

 

 

 

Three months ended
March 31, 2020

 

Year ended
December 31, 2019

 

Net deferred income tax asset, beginning of the period

 

$

13,783

 

$

18,881

 

Deferred income tax recovery (expense)

 

642

 

(3,809

)

Effect of foreign exchange

 

(2,219

)

(1,289

)

Net deferred income tax asset, end of the period

 

$

12,206

 

$

13,783

 

 

c)                  Deferred income tax balances

 

 

 

March 31,
2020

 

December 31,
2019

 

Brazil

 

 

 

 

 

Recognized deferred tax assets:

 

 

 

 

 

Non-capital losses

 

$

25,347

 

$

28,614

 

Mine properties, plant and equipment

 

947

 

1,080

 

 

 

 

 

 

 

Recognized deferred tax liabilities:

 

 

 

 

 

Transitional tax regime

 

$

(10,340

)

$

(12,023

)

Provisions

 

(3,748

)

(3,888

)

Net deferred income tax asset

 

$

12,206

 

$

13,783

 

 

11

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Deferred tax assets have not been recognized in respect of the following deductible temporary differences:

 

 

 

March 31,
2020

 

December 31,
2019

 

Canada

 

 

 

 

 

Non-capital loss carry-forwards

 

$

74,843

 

$

88,728

 

Mine properties, plant and equipment

 

23,606

 

23,595

 

Share issue costs

 

6,093

 

6,652

 

Ireland

 

 

 

 

 

Non-capital loss carry-forwards

 

$

2,593

 

$

2,473

 

Mine properties, plant and equipment

 

111

 

118

 

 

 

15)          Related party transactions

 

In accordance with IAS 24, key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company directly or indirectly, including any directors (executive and non-executive) of the Company. One of the directors, Ms. Koko Yamamoto, is a partner in an accounting firm that previously provided services to the Company. During the three months ended March 31, 2020, an amount in accounting fees of $nil (three months ended March 31, 2019 —$3) was billed and paid under normal payment terms.

 

During the three months ended March 31, 2020, 5,533 shares were issued to funds managed by Arias Resource Capital Management LP (the “ARC Funds”) in connection with a warrant exercise in 2019 (refer to note 12).

 

The remuneration of directors and other members of key management personnel during the period was as follows:

 

 

 

Three months ended

 

 

 

March 31,
2020

 

March 31,
2019

 

Short-term benefits

 

$

1,551

 

$

2,203

 

Share-based payments

 

483

 

1,177

 

Total

 

$

2,034

 

$

3,380

 

 

Refer to note 17 for additional commitments with management.

 

16)          Segmented disclosure

 

The Company has two operating segments: mine properties and exploration and evaluation properties. Corporate, which is not an operating segment includes the corporate team that provides administrative, technical, financial and other support to all of the Company’s business units.

 

12

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Exploration &
evaluation
properties

 

Mine
properties

 

Corporate

 

Total

 

Three months ended March 31, 2020

 

 

 

 

 

 

 

 

 

Revenues

 

$

—

 

$

58,186

 

$

—

 

$

58,186

 

Other gains (losses)

 

—

 

—

 

(523

)

(523

)

 

 

—

 

58,186

 

(523

)

57,663

 

Operating costs

 

—

 

(36,423

)

—

 

(36,423

)

Professional, consulting and management fees

 

—

 

(1,159

)

(1,130

)

(2,289

)

Foreign exchange (loss) gain

 

—

 

(22,104

)

9,915

 

(12,189

)

Other general and administrative expenses

 

—

 

(329

)

(846

)

(1,175

)

Share-based payments

 

—

 

—

 

(547

)

(547

)

Finance costs

 

—

 

(163

)

(10

)

(173

)

Interest income

 

—

 

380

 

510

 

890

 

Exploration and evaluation costs

 

(81

)

(584

)

—

 

(665

)

 

 

(81

)

(60,382

)

7,892

 

(52,571

)

Net income (loss) before tax

 

(81

)

(2,196

)

7,369

 

5,092

 

Income tax expense

 

—

 

—

 

—

 

—

 

Deferred income tax recovery

 

—

 

642

 

—

 

642

 

Net income (loss)

 

$

(81

)

$

(1,554

)

$

7,369

 

$

5,734

 

At March 31, 2020

 

 

 

 

 

 

 

 

 

Total non-current assets

 

$

 

 

$

197,286

 

$

26,037

 

$

223,323

 

Total assets

 

$

41

 

$

297,600

 

$

164,175

 

$

461,816

 

Total liabilities

 

$

 

 

$

129,394

 

$

1,111

 

$

130,505

 

 

 

 

Exploration &
evaluation
properties

 

Mine
properties

 

Corporate

 

Total

 

Three months ended March 31, 2019

 

 

 

 

 

 

 

 

 

Revenues

 

$

—

 

$

44,314

 

$

—

 

$

44,314

 

Operating costs

 

—

 

(29,071

)

—

 

(29,071

)

Professional, consulting and management fees

 

—

 

(1,270

)

(1,548

)

(2,818

)

Foreign exchange gain (loss)

 

—

 

1,225

 

(1,542

)

(317

)

Other general and administrative expenses

 

—

 

(268

)

(840

)

(1,108

)

Share-based payments

 

—

 

—

 

(1,524

)

(1,524

)

Finance costs

 

—

 

(85

)

(7,198

)

(7,283

)

Interest income

 

—

 

—

 

184

 

184

 

Exploration and evaluation costs

 

(204

)

(759

)

—

 

(963

)

 

 

(204

)

(30,228

)

(12,468

)

(42,900

)

Net income (loss) before tax

 

(204

)

14,086

 

(12,468

)

1,414

 

Income tax expense

 

—

 

(1,114

)

—

 

(1,114

)

Deferred income tax expense

 

—

 

(2,468

)

—

 

(2,468

)

Net income (loss)

 

$

(204

)

$

10,504

 

$

(12,468

)

$

(2,168

)

 

13

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Exploration
and
evaluation
properties

 

Mine
properties

 

Corporate

 

Total

 

At December 31, 2019

 

 

 

 

 

 

 

 

 

Total non-current assets

 

$

—

 

$

235,752

 

$

26,374

 

$

262,126

 

Total assets

 

$

75

 

$

312,142

 

$

153,901

 

$

466,118

 

Total liabilities

 

$

—

 

$

110,348

 

$

1,203

 

$

111,551

 

 

The Company recognized revenues of $58,186 in the three months ended March 31, 2020 (three months ended March 31, 2019 — $44,314). The revenues are solely related to the Company’s Mine Properties segment. All of the Company’s revenues are from transactions with the Company’s off-take partner, Glencore International AG.

 

17)          Commitments and contingencies

 

At March 31, 2020, the Company was party to certain management and consulting contracts. Minimum commitments under the agreements are approximately $3,130 and all payable within one year. These contracts also require that additional payments of up to approximately $4,695 be made upon the occurrence of certain events such as change of control. As the triggering event has not occurred, the contingent payments have not been reflected in these consolidated financial statements.

 

In 2008, Largo agreed to sell 100% of its vanadium production to Glencore International AG under an off-take agreement which, following the election by the Company, will expire at the end of April 2020. Refer to note 21, subsequent events.

 

The Company has entered into a number of contracts with third party customers to deliver monthly quantities of the Company’s various vanadium products. A significant proportion of the Company’s monthly vanadium production after April 2020 has been committed, with deliveries scheduled to begin in July 2020.

 

The Company’s mining and exploration activities are subject to various federal, provincial and international laws and regulations governing the protection of the environment. These laws and regulations are continually changing and generally becoming more restrictive. The Company has made payments to comply with such laws and regulations.

 

The Company indemnifies its directors and officers against any and all claims or losses reasonably incurred in the performance of their service to the Company to the extent permitted by law. The Company has acquired and maintains liability insurance for its directors and officers.

 

The Company is committed to a minimum amount of rental payments under five leases of office space which expire between October 31, 2020 and December 31, 2023. Minimum rental commitments remaining under the leases are approximately $988, including $356 due within one year. In addition, minimum rental commitments remaining under other short-term leases are approximately $46, all due within one year.

 

At the Company’s Maracás Menchen Mine, the Company has entered into purchase order contracts with remaining amounts due related to goods not received or services not rendered as of March 31, 2020 of $9,582.

 

The Company, through its subsidiaries, is party to legal proceedings in the ordinary course of its operations related to legally binding agreements with various third parties under supply contracts and consulting agreements. At March 31, 2020 two such proceedings were ongoing, each in Brazil. The first relates to a supply agreement for the Maracás Menchen Mine which was filed with the courts in October 2014. The amount claimed totals R$9,900 ($2,705), with a counterclaim filed by Vanádio for R$10,700 ($2,923). A provision of R$1,324 ($362) has been recognized at March 31, 2020 for the probable loss (December 31, 2019 — R$1,324 ($428)). The second proceeding relates to a consulting agreement dispute for which R$3,900 ($1,065) (December 31, 2019 — R$3,900 ($1,262)) has been claimed against two of the Company’s subsidiaries. No provision has been recognized for this proceeding. The Company and its subsidiaries are also party to legal proceedings regarding labour matters. A

 

14

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

provision was recorded at December 31, 2019 for such proceedings in an amount of R$3,468 ($1,122). At March 31, 2020, the provision recognized was R$3,103 ($848). The outcome of these proceedings remains dependent on the final judgment, which the Company does not expect to be delivered within the next 12 months. Management does not expect the outcome of any of the remaining proceedings to have a materially adverse effect on the results of the Company’s financial position or results of operations. Should any losses result from the resolution of these claims and disputes, they will be charged to operations in the period that they are determined.

 

18)          Financial instruments

 

Financial assets and financial liabilities at March 31, 2020 and December 31, 2019 were as follows:

 

 

 

March 31,
2020

 

December 31,
2019

 

Cash

 

$

206,137

 

$

166,077

 

Restricted cash

 

—

 

99

 

Amounts receivable

 

225

 

247

 

Accounts payable and accrued liabilities

 

86,018

 

101,360

 

Debt

 

35,210

 

—

 

 

Refer to the liquidity risk discussion below regarding liabilities.

 

The Company’s risk exposures and the impact on the Company’s financial instruments are summarized below. There have been no changes in the risks, objectives, policies and procedures from the previous year.

 

a)             Fair value

 

IFRS requires that the Company disclose information about the fair value of its financial assets and liabilities. Fair value estimates are made based on relevant market information and information about the financial instrument.

 

These estimates are subjective in nature and involve uncertainties in significant matters of judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect these estimates.

 

The fair value hierarchy categorizes into three levels the inputs to valuation techniques used to measure fair value.  The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs).

 

·             Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.

 

·             Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly such as those derived from prices.

 

·             Level 3 inputs are unobservable inputs for the asset or liability.

 

At March 31, 2020 and December 31, 2019, trade receivables are classified as financial assets at fair value through profit or loss and are measured at fair value. The valuation of trade receivables is classified within Level 2 of the fair value hierarchy as it is measured using observable vanadium market transaction data as reported by a recognized provider of global metal prices. The valuation of trade receivables at March 31, 2020 and December 31, 2019 resulted in a liability position. Accordingly, this has been classified as trade payables (refer to note 9) at March 31, 2020 and December 31, 2019.

 

The carrying amounts for cash, restricted cash, other amounts receivable, accounts payable and accrued liabilities (excluding trade payables) and debt in the condensed interim consolidated statements of financial position approximate fair values because of the limited term of these instruments.

 

15

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

There have been no changes in the classification of financial instruments in the fair value hierarchy since December 31, 2019. The Company does not have any financial instruments measured using Level 3 inputs. The Company does not offset financial assets with financial liabilities and there were no transfers between Level 1 and Level 2 input financial instruments.

 

b)             Credit risk

 

The Company’s credit risk is primarily attributable to cash, restricted cash and amounts receivable. The Company minimizes its credit risk with respect to cash and restricted cash by leaving its funds on deposit with the highest rated banks in Canada, Ireland and Brazil. Financial instruments included in amounts receivable consist primarily of a receivable from one unrelated company. Management believes that the credit risk related to this receivable is remote due the credit quality of the customer.

 

c)              Liquidity risk

 

The following table details the Company’s expected remaining contractual cash flow requirements at March 31, 2020 for its financial liabilities with agreed repayment periods.

 

 

 

Less than
6 months

 

6 months
to 1 year

 

1 to 3 years

 

Over 3 years

 

Accounts payable and accrued liabilities (note 9)

 

$

85,988

 

$

30

 

$

—

 

$

—

 

Debt (note 10)

 

—

 

35,210

 

—

 

—

 

 

 

$

85,988

 

$

35,240

 

$

—

 

$

—

 

 

The Company’s principal sources of liquidity are its cash flow from operating activities and cash of $206,137 (December 31, 2019 — $166,077). In response to the vanadium price decreases throughout 2019, the Company has adopted certain measures to manage its liquidity risk including repaying its Notes during the year ended December 31, 2019. Despite these measures, and in conjunction with the current vanadium price environment, a risk exists that the Company will not have sufficient liquidity to meet its obligations as they come due. At March 31, 2020, the Company’s trade receivables was in a liability position of $75,843 and was classified as trade payables (refer to notes 9 and 18(a)) (December 31, 2019 — trade payables of $87,782).

 

d)             Market risk

 

Interest rate risk

 

The Company’s exposure to a rise in interest rates is limited to that portion of its total debt that is subject to floating interest rates. At March 31, 2020, the Company’s debt is subject to fixed interest rates and the Company does not have any exposure to floating interest rates.

 

Foreign currency risk

 

At March 31, 2020, the Company’s outstanding debt is 100% denominated in U.S. dollars (December 31, 2019 — no outstanding debt facilities).

 

The impact of fluctuations in foreign currency on cash balances, vanadium products and debt relates primarily to fluctuations between the U.S. dollar, the Canadian dollar, the Brazilian real (functional currency of Vanádio) and the Euro (functional currency of Largo Commodities Trading Ltd.). At March 31, 2020 the Company had cash balances, vanadium products and debt denominated in U.S. dollars.

 

A 5% change in the value of the U.S. dollar relative to the Canadian dollar, the Brazilian real and the Euro would affect the value of the U.S. dollar denominated cash balances at March 31, 2020 by approximately $7,305; the value of U.S. dollar priced vanadium products by $267; and the value of U.S. dollar denominated debt by $1,760.

 

16

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Price risk

 

The Company’s only financial instruments susceptible to price risk is its trade receivables /  payables, which can vary with the market price of vanadium for products sold that have not yet had the final selling price determined in accordance with the Company’s off-take agreement. A 10% decrease or increase in the price of vanadium could affect the value of trade payables at March 31, 2020 by $2,447.

 

19)          Revenues

 

 

 

Three months ended

 

 

 

March 31,
2020

 

March 31,
2019

 

Vanadium sales from a contract with a customer

 

$

55,809

 

$

101,403

 

Re-measurement of trade receivables / payables

 

2,377

 

(57,089

)

Total

 

$

58,186

 

$

44,314

 

 

20)          Expenses

 

 

 

Three months ended

 

 

 

March 31,
2020

 

March 31,
2019

 

Operating costs:

 

 

 

 

 

Direct mine and mill costs

 

$

24,288

 

$

19,464

 

Royalties

 

3,202

 

2,326

 

Depreciation and amortization

 

8,933

 

7,281

 

 

 

$

36,423

 

$

29,071

 

Finance costs:

 

 

 

 

 

Interest expense and other fees

 

$

118

 

$

6,410

 

Accretion

 

55

 

873

 

 

 

$

173

 

$

7,283

 

 

21)          Subsequent events

 

COVID-19

 

The Company is conscious of the rapid expansion of the COVID-19 pandemic and the evolving global implications. To date, there have been no significant disruptions to the Company’s operations, supply chain or on its shipment of products from the Maracás Menchen Mine. However, the Company cautions that the potential future impact of any restrictions on the Company’s operations, supply chain, sales efforts and logistics is currently unknown but could be significant.

 

Functional and presentation currency

 

Following the election by the Company in 2019, the Company’s off-take agreement with Glencore International AG expired at the end of April 2020. In connection with this and with the Company managing its own sales activities from May 1, 2020 onwards, the Company and a number of its subsidiaries will generate U.S. dollar denominated revenues and incur U.S. dollar denominated costs from May 1, 2020 onwards. Considering the significance of these revenues and costs to the Company’s activities, the Company has determined that the currency of the primary economic environment in which the below entities operate will change to the U.S. dollar on May 1, 2020.

 

Entity Name

 

Functional Currency
at March 31, 2020

 

Functional Currency
effective May 1, 2020

 

Largo Resources Ltd.

 

Canadian dollar

 

U.S. dollar

 

Largo Commodities Holding Ltd.

 

Euro

 

U.S. dollar

 

Largo Commodities Trading Ltd.

 

Euro

 

U.S. dollar

 

 

17

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of Canadian dollars and shares (except per share information)

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

The change in functional currency to the U.S. dollar is accounted for prospectively from May 1, 2020.

 

The Company and its subsidiaries operate in a mixture of currencies and therefore the determination of functional currency involves certain judgments to determine the primary economic environment in which the Company or its subsidiaries operate. The Company reconsiders the functional currency of its entities if there is a change in events and conditions which determine the primary economic environment.

 

In addition, the Company is considering changing the presentation currency of its consolidated financial statements from the Canadian dollar to the U.S. dollar. This is expected to be effective for the reporting on the three and six month periods ending June 30, 2020 onwards.

 

18

Exhibit 99.16

 

GRAPHIC

 

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

FOR THE THREE MONTHS ENDED MARCH 31, 2020

 

 

 

TABLE OF CONTENTS

 

 

To Our Shareholders

1

 

 

The Company

1

 

 

Q1 2020 Highlights

1

 

 

Significant Events and Transactions Subsequent To The Period

2

 

 

Q1 2020 Summary

2

 

 

Selected Quarterly Information

6

 

 

Operations

7

 

 

Financial Instruments

13

 

 

Liquidity And Capital Resources

13

 

 

Outstanding Share Data

14

 

 

Transactions With Related Parties

15

 

 

Commitments And Contingencies

15

 

 

Disclosure Controls And Procedures And Internal Controls Over Financial Reporting

16

 

 

Significant Accounting Judgments, Estimates And Assumptions

17

 

 

Changes In Accounting Policies

17

 

 

Non-GAAP Measures

17

 

 

Risks And Uncertainties

20

 

 

Cautionary Statement Regarding Forward-Looking Information

21

 

 

TO OUR SHAREHOLDERS

 

The following Management’s Discussion and Analysis (“MD&A”) relates to the financial condition and results of operations of Largo Resources Ltd. (“we”, “our”, “us”, “Largo”, or the “Company”) for the three months ended March 31, 2020 (“Q1 2020”) and should be read in conjunction with (i) the unaudited condensed interim consolidated financial statements and related notes for the same period, (ii) the audited annual consolidated financial statements and related notes for the year ended December 31, 2019 and (iii) the MD&A for the year ended December 31, 2019. References in the below discussion refer to the note disclosures contained in the Q1 2020 unaudited condensed interim consolidated financial statements. References in the below discussion to “Q1 2019” refer to the three months ended March 31, 2019.

 

The financial statements and related notes of Largo have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued as issued by the International Accounting Standards Board (“IASB”) applicable to a going concern. Certain non-GAAP measures are discussed in this MD&A, which are clearly disclosed as such. Additional information, including our press releases, has been filed electronically through the System for Electronic Document Analysis and Retrieval (“SEDAR”) and is available online under our profile at www.sedar.com.

 

This MD&A reports our activities through May 12, 2020, unless otherwise indicated. References to “date of this MD&A” mean May 12, 2020. References to the symbol “R$” mean the Real, the official currency of Brazil.  References to the symbol “US$” mean the U.S. dollar.  Except as otherwise set out herein, all amounts expressed herein are in thousands of Canadian dollars, denominated by “$”. The Company’s shares, options, units and warrants are expressed in thousands. Prices are not expressed in thousands.

 

Mr. Paul Sarjeant B.Sc. P.Geo., is a Qualified Person as defined under National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”) and has reviewed the technical information in the MD&A. Mr. Sarjeant is Manager, Geology of the Company. Refer to the Operations section of this MD&A for details of the Qualified Persons involved in reviewing the updated reserves and resources at the Company’s Maracás Menchen Mine.

 

THE COMPANY

 

Largo is a Canadian natural resource company organized and existing under the Business Corporations Act (Ontario). Largo is listed on the Toronto Stock Exchange (“TSX”), with a vanadium mine and vanadium and tungsten projects in Brazil and Canada. In Brazil, Largo owns the Maracás Menchen Mine and has secondary projects with the Currais Novos tungsten tailings project and the Campo Alegre de Lourdes iron-vanadium project. In Canada, Largo has a project at the Northern Dancer tungsten-molybdenum property, located in the Yukon Territory. The Company is dedicated to the operation and expansion of the Maracás Menchen Mine and predominantly all of the Company’s activities are focused on this mine.

 

Q1 2020 HIGHLIGHTS

 

·                  The Company’s Maracás Menchen Mine produced 2,831 tonnes of vanadium pentoxide (“V2O5”) in Q1 2020 and had sales of 3,170 tonnes of V2O5, a new quarterly sales record.

 

·                  The Company’s cash balance at March 31, 2020 was $206,137.

 

·                  The Company recorded net income before tax of $5,092 for Q1 2020 and net income of $5,734 after the recognition of a deferred income tax recovery of $642.

 

·                  On January 22, 2020, the Company announced the launch of VPURE and VPURE+, newly developed brands for the Company’s vanadium products.

 

·                  In Q1 2020, 2,707 warrants with an exercise price of $0.65 were exercised resulting in gross proceeds to the Company of $1,713, with 129 warrants surrendered as part of a cashless exercise. 5,533 shares were issued in connection with a cashless exercise of warrants in 2019 (refer to note 12).

 

·                  In March 2020, the Company secured two credit facilities in Brazil, for a total of US$24,788. These facilities were fully drawn down and are due for repayment as a lump sum, together with accrued interest, in March 2021. Refer to note 10 for further details.

 

Management’s Discussion and Analysis for the Three Months Ended March 31, 2020

 

1

 

·                  The Company is conscious of the rapid expansion of the COVID-19 pandemic and the evolving global implications. To date, there have been no significant disruptions to the Company’s operations, supply chain or on its shipment of products from the Maracás Menchen Mine. However, the Company cautions that the potential future impact of any restrictions on the Company’s operations, supply chain, sales efforts and logistics is currently unknown but could be significant.

 

·                  The Company’s planned upgrades to the kiln and improvements in the cooler have been postponed until further notice as a result of precautionary measures such as limiting mine site personnel and contractors in light of the COVID-19 pandemic. This work is not expected to have an impact on the Company’s production. The Company instead performed an enhanced preventative maintenance program in the chemical plant for approximately 15 days and, as a result, April 2020 production was 480 tonnes of V2O5. Further, the COVID-19 pandemic has caused delays in the start of the Company’s 2020 drilling program and work will commence as soon as the drill contractor and the Company are able to mobilise people and equipment to the mine site based on government recommendations and policy and safety concerns for mine site personnel and contractors.

 

SIGNIFICANT EVENTS AND TRANSACTIONS SUBSEQUENT TO THE PERIOD

 

·                  Following the election by the Company in 2019, the Company’s off-take agreement with Glencore International AG expired at the end of April 2020. In connection with this and with the Company managing its own sales activities from May 1, 2020 onwards, the Company and a number of its subsidiaries will generate U.S. dollar denominated revenues and incur U.S. dollar denominated costs from May 1, 2020 onwards. Considering the significance of these revenues and costs to the Company’s activities, the Company has determined that the currency of the primary economic environment in which three of the Company’s entities operate will change to the U.S. dollar on May 1, 2020. Refer to note 21 for full details.

 

Q1 2020 SUMMARY

 

Financial

 

 

 

Three months ended

 

 

 

 

 

 

 

March 31,
2020

 

March 31,
2019

 

Movement

 

Revenues

 

$

58,186

 

$

44,314

 

$

13,872

 

31

%

Other gains (losses)

 

(523

)

—

 

(523

)

—

 

 

 

57,663

 

44,314

 

13,349

 

30

%

Operating costs

 

(36,423

)

(29,071

)

(7,352

)

25

%

Direct mine and mill costs

 

(24,288

)

(19,464

)

(4,824

)

25

%

Professional, consulting and management fees

 

(2,289

)

(2,818

)

529

 

(19

)%

Foreign exchange loss

 

(12,189

)

(317

)

(11,872

)

3,745

%

Other general and administrative expenses

 

(1,175

)

(1,108

)

(67

)

6

%

Share-based payments

 

(547

)

(1,524

)

977

 

(64

)%

Finance costs

 

(173

)

(7,283

)

7,110

 

(98

)%

Interest income

 

890

 

184

 

706

 

384

%

Exploration and evaluation costs

 

(665

)

(963

)

298

 

(31

)%

 

 

(52,571

)

(42,900

)

(9,671

)

23

%

Net income before tax

 

$

5,092

 

$

1,414

 

$

3,678

 

260

%

Income tax expense

 

—

 

(1,114

)

1,114

 

(100

)%

Deferred income tax recovery (expense)

 

642

 

(2,468

)

3,110

 

(126

)%

Net income (loss)

 

$

5,734

 

$

(2,168

)

$

7,902

 

(364

)%

 

 

 

 

 

 

 

 

 

 

Unrealized loss on foreign currency translation

 

(31,250

)

(10,424

)

(20,826

)

200

%

Comprehensive income (loss)

 

$

(25,516

)

$

(12,592

)

$

(12,924

)

103

%

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share

 

$

0.01

 

$

(0.00

)

$

0.01

 

—

 

Diluted earnings (loss) per share

 

$

0.01

 

$

(0.00

)

$

0.01

 

—

 

 

2

 

 

 

Three months ended

 

 

 

 

 

 

 

March 31,
2020

 

March 31,
2019

 

Movement

 

Cash provided before non-cash working capital items

 

$

11,634

 

$

21,688

 

$

(10,054

)

(46

)%

Net cash provided by operating activities

 

11,622

 

95,416

 

(83,794

)

(88

)%

Net cash provided by (used in) financing activities

 

35,770

 

(92,359

)

128,129

 

(139

)%

Net cash (used in) investing activities

 

(4,424

)

(8,202

)

3,778

 

(46

)%

Net change in cash

 

$

40,060

 

$

(15,488

)

$

55,548

 

(359

)%

 

The movements in the discussion below refer to those shown in the previous tables.

 

·                  The Company recorded net income of $5,734 in Q1 2020, compared with a net loss of $2,168 in Q1 2019. This movement was primarily due to a 31% increase in revenues, a 98% decrease in finance costs and a 118% decrease in the total tax expense. This was partially offset by a 25% increase in operating costs and an increase in the foreign exchange loss of 3,745%.

 

Sales and Trading

 

·                  The Company recognized revenues of $58,186 in Q1 2020, compared with $44,314 in Q1 2019, with production for Q1 2020 of 2,831 tonnes of V2O5 being 732 tonnes higher than the 2,099 tonnes produced in Q1 2019. Vanadium sales from a contract with a customer was $55,809 in Q1 2020, compared with $101,403 in Q1 2019. This decrease is primarily attributable to a decrease in the V2O5 price, with the average price per lb of V2O5 of approximately US$6.07 for Q1 2020, compared with approximately US$16.34 for Q1 2019. Revenues are related to the Mine properties segment. Refer to note 4(c) part 9 of the Company’s annual consolidated financial statements for the year ended December 31, 2019 for the Company’s vanadium sales accounting policy.

 

 

 

Three months ended

 

 

 

March 31,
2020

 

March 31,
2019

 

Revenues per pound sold(1), (2)

 

$

8.33

 

$

9.57

 

Revenues per pound sold(1), (2) (US$)

 

US$

6.31

 

US$

7.19

 

 

 

 

 

 

 

Vanadium sales per pound sold(1), (2)

 

$

7.99

 

$

21.90

 

Vanadium sales per pound sold(1), (2) (US$)

 

US$

6.05

 

US$

16.46

 

 

 

 

 

 

 

Revenue adjustment per pound(1), (2)

 

$

0.28

 

$

(10.32

)

Revenue adjustment per pound(1), (2) (US$)

 

US$

0.21

 

US$

(7.75

)

 

(1)    The revenues per pound, vanadium sales per pound and revenue adjustment per pound reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this MD&A.

 

(2)    Revenues per pound sold and vanadium sales per pound sold are calculated based on the quantity of V2O5 sold during the stated period. Revenue adjustment per pound is calculated based on the quantity of V2O5 sold that is subject to re-measurement. This may or may not differ to the quantity sold. Accordingly, these three measures may not, and are not intended to, sum.

 

·                  As a consequence of the increase in the V2O5 price since Q4 2019 (refer to the table on page 5) and the positive revenue adjustment per pound(1) realized in Q1 2020, the Company’s trade payables balance at March 31, 2020 (note 9) was $75,843 (December 31, 2019 — $87,782). At March 31, 2020, the revenue adjustment payable(1) was $91,933 (US$64,840). The Company’s revenue adjustment payable(1) at April 30, 2020 was $89,335 (US$64,390). Also refer to the “Liquidity and Capital Resources” section of this MD&A.

 

·                  During Q1 2020, the Company purchased and sold vanadium products (note 6) as part of the Company’s strategy to fulfil expected sales contracts going forward. Other gains (losses) includes the gains and losses recognized on these transactions, as well as the remeasurement gains and losses from the fair value measurement at the period end date. For Q1 2020 this was a loss of $523 (Q1 2019 — $nil).

 

(1)  The revenue adjustment per pound and revenue adjustment payable reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this MD&A.

 

3

 

Costs

 

 

 

Three months ended

 

 

 

March 31,
2020

 

March 31,
2019(2)

 

Cash operating costs per pound(1)

 

$

4.15

 

$

5.04

 

Cash operating costs per pound(1) (US$)

 

US$

3.14

 

US$

3.79

 

 

 

 

 

 

 

Cash operating costs excluding royalties per pound(1)

 

$

3.69

 

$

4.54

 

Cash operating costs excluding royalties per pound(1) (US$)

 

US$

2.79

 

US$

3.41

 

 

 

 

 

 

 

Total cash costs(1)

 

$

3.97

 

 

 

Total cash costs(1) (US$)

 

US$

3.01

 

 

 

 

(1)    The cash operating costs per pound, cash operating costs excluding royalties per pound and total cash costs reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this MD&A.

 

(2)    Cash operating costs per pound and cash operating costs excluding royalties per pound for this period were calculated on a pounds produced basis. Effective Q1 2020, they are calculated on a pounds sold basis. The amounts presented here are restated on a pounds sold basis. Refer to the “Non-GAAP Measures” section of this MD&A.

 

·                  Operating costs of $36,423 in Q1 2020 (Q1 2019 — $29,071) include direct mine and mill costs of $24,288 (Q1 2019 — $19,464), depreciation and amortization of $8,933 (Q1 2019 — $7,281) and royalties of $3,202 (Q1 2019 — $2,326). The total operating costs are related to the Mine properties segment. The increase in direct mine and mill costs is primarily attributable to the increase in production and sales, with 2,831 tonnes of V2O5 produced in Q1 2020 (Q1 2019 — 2,099 tonnes) and 3,170 tonnes of V2O5 sold in Q1 2020 (Q1 2019 — 2,100 tonnes).

 

·                  Cash operating costs excluding royalties per pound(2), which are now calculated on pounds sold, were $3.69 per lb (US$2.79), compared with $4.54 (US$3.41) for Q1 2019. The decrease seen in Q1 2020 compared with Q1 2019 is largely due to the increased sales as noted above, partially offset by a slight decrease in the global recovery level to 79.9% from 80.0% in Q1 2019. Total cash costs(2) are calculated on pounds sold, exclude royalties and include the Company’s total professional, consulting and management fees and other general and administrative expenses. For Q1 2020, total cash costs(2) were $3.97 (US$3.01).

 

·                  Professional, consulting and management fees decreased from Q1 2019 by 19%. The decrease is primarily attributable to costs incurred in 2019 in connection with the redemption of the Notes and a decrease in management compensation as a result of changes in the Company’s management team since Q1 2019. Of the total professional, consulting and management fee expense in Q1 2020, $1,159 related to the Mine properties segment (Q1 2019 — $1,270) and $1,130 related to Corporate (Q1 2019 — $1,548), which is not an operating segment (refer to note 16).

 

·                  The foreign exchange loss increased by 3,745% or $11,872 since Q1 2019. This is primarily attributable to a strengthening of the U.S. dollar against the Brazilian real by approximately 29% since December 31, 2019 on U.S. dollar denominated costs and liabilities, partially offset by a strengthening of the U.S. dollar against the Canadian dollar by approximately 9% since December 31, 2019 on U.S. dollar denominated assets. Of the total foreign exchange loss in Q1 2020, $22,104 related to the Mine properties segment (Q1 2019 — gain of $1,225) and a gain of $9,915 related to Corporate (Q1 2019 — loss of $1,542).

 

·                  Share-based payments decreased by 64% since Q1 2019. This is primarily due to differences in the terms of the stock option and restricted share unit (“RSU”) grants in Q1 2020 as compared to Q1 2019.

 

·                  Finance costs decreased from Q1 2019 by 98%. The decrease is primarily attributable to the redemption of Notes that was completed by July 8, 2019 (refer to note 10). Finance costs relating to the credit facilities the Company secured at the end of Q1 2020 (refer to note 10) will be accrued until their settlement in March 2021. Of the total in Q1 2020, $163 related to the Mine properties segment (Q1 2019 — $85) and $10 related to Corporate (Q1 2019 — $7,198).

 

(2)  The cash operating costs per pound, cash operating costs excluding royalties per pound and total cash costs reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this MD&A.

 

4

 

·                  Interest income increased from Q1 2019 by 384%. The increase is primarily due to the Company’s increased cash position prior to Q1 2020 as compared with the same prior year period and the final redemption of the Company’s long-term debt facilities in 2019, which enabled the Company to benefit from greater deposit interest rates. Of the total in Q1 2020, $380 related to the Mine properties segment (Q1 2019 — $nil) and $510 related to Corporate (Q1 2019 — $184).

 

·                  Income tax expense decreased from Q1 2019 by 100% as a consequence of the Mine properties segment being in a tax loss position for Q1 2020. This tax loss position resulted in the deferred income tax recovery in Q1 2020.

 

·                  Comprehensive loss increased from Q1 2019 by 103% after an increase in the unrealized loss on foreign currency translation of 200%. This increase is primarily due to a weakening of the Brazilian real against the Canadian dollar by approximately 16% since December 31, 2019.

 

Cash Flows

 

·                  Cash provided by operating activities decreased from Q1 2019 by $83,794. This is primarily due to the total change in amounts receivable and accounts payable of $80,153 in Q1 2019 when the Company’s trade receivables were first classified as trade payables. Revenues exceeded direct mine and mill costs and royalties by $30,696 in Q1 2020, compared with $22,524 in Q1 2019.

 

·                  Cash provided by financing activities changed from cash used in Q1 2019 by $128,129. The movement is primarily due to the receipt of $33,183 from the credit facilities in Q1 2020 (refer to note 10) and a $86,611 repayment of Notes in Q1 2019. In addition, $1,713 was received in Q1 2020 from the issuance of shares (Q1 2019 — $369), with debt issues costs, interest and other associated fees paid of $nil (Q1 2019 — $6,209).

 

·                  Cash used in investing activities decreased from Q1 2019 by $3,778 primarily due to the expansion project being undertaken in 2019.

 

·                  The net change in cash increased from Q1 2019 by $55,548 as a result of the factors noted above.

 

Operations

 

·                  Production quantities and non-GAAP unit cost measures(1) are summarized in the following table:

 

 

 

Production

 

Production 
Pounds

 

Average
Quarterly V2O5

 

Cash operating costs 
excluding royalties(1)

 

Total cash costs(1)

 

Period

 

Tonnes

 

Equivalent(2)

 

price (US$/lb)

 

US$/lb(3)

 

$/lb

 

US$/lb(3)

 

$/lb

 

Q1 2020

 

2,831

 

6,241,279

 

6.07

 

$

2.79

 

$

3.69

 

$

3.01

 

$

3.97

 

Q4 2019(4)

 

3,011

 

6,638,111

 

5.37

 

$

2.48

 

$

3.28

 

 

 

 

 

Q3 2019(4)

 

2,952

 

6,508,038

 

7.16

 

$

2.81

 

$

3.71

 

 

 

 

 

Q2 2019(4)

 

2,515

 

5,544,619

 

8.59

 

$

3.30

 

$

4.43

 

 

 

 

 

Q1 2019(5)

 

2,099

 

4,627,497

 

16.34

 

$

3.41

 

$

4.54

 

 

 

 

 

Q4 2018(4)

 

2,595

 

5,720,989

 

24.53

 

$

3.48

 

$

4.60

 

 

 

 

 

Q3 2018(4)

 

2,563

 

5,650,441

 

19.66

 

$

3.05

 

$

3.99

 

 

 

 

 

Q2 2018(4)

 

2,458

 

5,418,956

 

15.44

 

$

3.35

 

$

4.32

 

 

 

 

 

 

(1)    The cash operating costs excluding royalties per pound and total cash costs reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this MD&A.

 

(2)    Conversion of tonnes to pounds, 1 tonne = 2,204.62 pounds or lbs.

 

(3)    Calculated from $ using average $/US$ foreign exchange rates of 1.32, 1.32, 1.32, 1.34, 1.33, 1.32, 1.31 and 1.29 for Q1 2020, Q4 2019, Q3 2019, Q2 2019, Q1 2019, Q4 2018, Q3 2018 and Q2 2018, respectively.

 

(4)    Cash operating costs excluding royalties per pound for these periods were calculated on a pounds produced basis. Effective Q1 2020, it is calculated on a pounds sold basis.

 

(5)    Q1 2019 has been calculated and presented on a pounds sold basis. Refer to the “Non-GAAP Measures” section of this MD&A.

 

·                  Q1 2020 production of 2,831 tonnes of V2O5 was 35% higher than Q1 2019 primarily as a consequence of the expansion project completed in Q4 2019 and the kiln maintenance performed in Q1 2019. Production in Q1 2020 was impacted by hot spots in the cooler’s shell, which required a number of stoppages for maintenance on the refractory. This contributed to the Q1 2020 production being 6% lower than in Q4 2019. In January 2020, 956 tonnes of V2O5 was produced, with 915 tonnes produced in February and 960 tonnes in March.

 

·                  The Q1 2020 global recovery was 79.9%, in line with the 80.0% achieved in Q1 2019 and higher than the 77.3% achieved in Q4 2019. This is primarily due to the ramp up process following the completion of the expansion

 

5

 

project in Q4 2019. The global recovery in January 2020 was 77.6%, with 78.9% achieved in February and 82.9% achieved in March, demonstrating the ramp up through Q1 2020.

 

·                  The annual kiln and cooler shutdown to replace the refractory and the planned improvements to the kiln and cooler to increase capacity that was scheduled for April 2020 have been deferred to later in 2020 as a result of precautionary measures taken by the Company in light of the COVID-19 pandemic. This work is not expected to have an impact on the Company’s production. The Company instead performed an enhanced preventative maintenance program in the chemical plant for approximately 15 days in April 2020 and, as a result, April 2020 production was 480 tonnes of V2O5.

 

SELECTED QUARTERLY INFORMATION

 

Summary financial information for the eight quarters ended March 31, 2020, prepared in accordance with IFRS:

 

Period

 

Revenue

 

Net
Income (Loss)

 

Basic Earnings
(Loss) per Share

 

Total Assets

 

Non-current 
Liabilities

 

Q1 2020

 

$

58,186

 

$

5,734

 

$

0.01

 

$

461,816

 

$

8,754

 

Q4 2019

 

34,118

 

(4,953

)

(0.01

)

466,118

 

9,572

 

Q3 2019

 

32,118

 

(8,590

)

(0.02

)

448,881

 

9,234

 

Q2 2019

 

29,462

 

(20,501

)

(0.04

)

492,902

 

9,603

 

Q1 2019

 

44,314

 

(2,168

)

(0.00

)

476,574

 

8,893

 

Q4 2018

 

177,543

 

107,961

 

0.21

 

552,825

 

8,865

 

Q3 2018

 

149,458

 

71,416

 

0.14

 

463,972

 

172,239

 

Q2 2018

 

103,321

 

90,735

 

0.17

 

634,612

 

163,652

 

 

The Company’s asset base has fluctuated over the last eight quarters ended March 31, 2020, with the high in Q2 2018 primarily attributable to proceeds from the senior secured notes held in escrow as restricted cash prior to the settlement of debt facilities in Q3 2018 and amounts receivable.

 

During Q1 2020, the Company recognized revenues of $58,186, which was offset by operating costs of $36,423, finance costs of $173 and a total tax recovery of $642.

 

During Q4 2019, the Company recognized revenues of $34,118, which was offset by operating costs of $29,980, finance costs of $52 and a total tax expense of $2,409.

 

During Q3 2019, the Company recognized revenues of $32,118, which was offset by operating costs of $31,506, finance costs of $58 and a total tax recovery of $1,260.

 

During Q2 2019, the Company recognized revenues of $29,462, which was offset by operating costs of $33,284, finance costs of $10,897 and a total tax expense of $222.

 

During Q1 2019, the Company recognized revenues of $44,314, which was offset by operating costs of $29,071, finance costs of $7,283 and a total tax expense of $3,582.

 

During Q4 2018, the Company recognized revenues of $177,543, which was offset by operating costs of $37,637, finance costs of $8,306 and a total tax expense of $11,694.

 

During Q3 2018, the Company recognized revenues of $149,458, which was offset by operating costs of $36,706, finance costs of $15,031 and a total tax expense of $20,318.

 

During Q2 2018, the Company recognized revenues of $103,321 and a deferred tax recovery of $45,593, which was offset by operating costs of $30,220 and finance costs of $8,423. The Company recognized a foreign exchange loss of $9,055 primarily due to the translation of U.S. denominated cash into Canadian dollar equivalent.

 

6

 

OPERATIONS

 

Maracás Menchen Mine

 

Recent Developments

 

Expenditures of $4,598 were capitalized to mine properties, plant and equipment during Q1 2020 (year ended December 31, 2019 — $55,511), including $2,573 of capitalized waste stripping and push back costs (year ended December 31, 2019 — $9,989).

 

Sales of V2O5 during Q1 2020 were 3,170 tonnes, a new quarterly record. This included 340 tonnes of high purity V2O5 (Q1 2019 — 2,100 tonnes, including 440 tonnes of high purity V2O5).

 

The production of 2,831 tonnes of V2O5 in Q1 2020 was 35% higher than the 2,099 tonnes of V2O5 produced in Q1 2019, but 8% lower than budget. This is primarily due to reduced availability caused by shutdowns of the kiln and cooler to maintain the refractory and to correct an instability in the kiln feed.

 

The Q1 2020 global recovery of 79.9% is in line with both Q1 2019 and the budget, with strong recovery levels seen in both the crushing and milling areas of the plant.

 

In Q1 2020, 203,966 tonnes of ore were mined with an effective grade of 1.61% of V2O5. The Company produced 100,072 tonnes of concentrate with an effective grade of 3.36%. The decrease in total ore mined when compared to Q1 2019 is due to operational adjustments to limit the mine site contractor workforce during the COVID-19 pandemic as well as operational restrictions due to the rainy season. The Company used available stocks to feed the crushing plant in order to mitigate the impact on V2O5 production.

 

The following table is a summary of production statistics at the Maracás Menchen Mine.

 

 

 

Q1 2020

 

Q1 2019

 

Total Ore Mined (tonnes)

 

203,966

 

250,109

 

Ore Grade Mined - Effective Grade(1) (%)

 

1.61

 

1.29

 

 

 

 

 

 

 

Effective Grade of Ore Milled (%)

 

1.59

 

1.51

 

Concentrate Produced (tonnes)

 

100,072

 

86,673

 

Grade of Concentrate (%)

 

3.36

 

3.32

 

Contained V2O5 (tonnes)

 

3,365

 

2,874

 

 

 

 

 

 

 

Crushing Recovery (%)

 

98.3

 

97.0

 

Milling Recovery (%)

 

98.4

 

96.8

 

Kiln Recovery (%)

 

88.3

 

89.2

 

Leaching Recovery (%)

 

96.6

 

97.7

 

Chemical Plant Recovery (%)

 

96.8

 

97.7

 

Global Recovery (%)(2)

 

79.9

 

80.0

 

 

 

 

 

 

 

V2O5 Produced (Flake + Powder) (tonnes)

 

2,831

 

2,099

 

 

(1)         Effective grade represents the percentage of magnetic material mined multiplied by the percentage of V2O5 in the magnetic concentrate.

 

(2)         Global recovery is the product of crushing recovery, milling recovery, kiln recovery, leaching recovery and chemical plant recovery.

 

The Company uses production drilling prior to blasting to better define the ore and waste material being mined. This dilution control procedure has enabled the Company to avoid mining waste rock inside the ore block, resulting in less ore being mined, but with a higher grade than expected. The V2O5 content of the mined ore and the mine sequencing is consistent with that anticipated in the Technical Report (refer to the “Reserves and Resources” section). The Company’s crushing and milling costs have benefited from the implementation of this procedure as a result of the lower throughput of material in these sections of the plant.

 

7

 

2020 Guidance

 

The Company’s progress against its sales strategy for 2020 is in line with the Company’s expectations. The Company has committed approximately 800 tonnes of V2O5 per month for sales between July and December 2020. Sales commitments are lower in May and June 2020 as the Company works to build up its conversion pipeline and global inventories. The balance of the Company’s production will be targeted towards strategic stock building and spot sales, which the Company expects to be particularly active in 2020.

 

The Company has committed sales of its VPure+ and VPure Flakes products, as well as ferrovanadium produced from VPure Flakes.

 

The Company is confident that building its own commercial capacity will add significant long-term value to the Company.

 

The Company’s Maracás Menchen Mine continued operations during Q1 2020 and the Company is maintaining it’s 2020 guidance on a “business as usual” basis. The guidance and forecasts in this MD&A are highly dependent on there being no disruptions or interruptions to the Company’s supply chain and logistics, which are critical to the Company’s operations and sales. Notwithstanding the Company’s production, cost and sales guidance for 2020, the Company is conscious of the rapid expansion of the COVID-19 pandemic and the evolving measures being imposed by governments globally to reduce its spread and the impact that this may have on the Company’s guidance. To date, the restrictions imposed by the government in Brazil have not significantly impacted the Company’s operations but the potential future impact of these restrictions and other restrictions globally on the Company’s operations, sales efforts and logistics is unknown but could be significant.

 

The Company is continuing to monitor the rapidly developing impacts of the COVID-19 pandemic and will take all possible actions to help minimize the impact on the Company and its people. However, these actions may significantly change the guidance and forecasts presented. The Company is evaluating the timing for the construction of the ferrovanadium conversion plant, including the deferral of planned 2020 capital expenditures in light of these uncertainties. This deferral will not impact the Company’s commercial strategy in 2020. The Company has decided to proceed with its previously announced V2O3 project, with 2020 capital expenditures estimated to be in the range of US$8,000 to US$10,000. Refer to the Company’s Annual Information Form for the year ended December 31, 2019 for the full discussion of the Company’s Risks and Uncertainties, including those relating to the COVID-19 pandemic.

 

 

 

2020 Guidance

 

Annual V2O5 production

 

tonnes

 

11,750 - 12,250

 

Annual V2O5 sales

 

tonnes

 

9,500 - 10,000

 

 

 

 

 

 

 

Cash operating costs excluding royalties(1), (2)

 

US$/lb

 

3.05 - 3.25

 

Total cash costs(1), (2)

 

US$/lb

 

3.45 - 3.65

 

 

 

 

 

 

 

V2O3 processing plant capital expenditures

 

US$

 

8,000 - 10,000

 

 

 

 

 

 

 

Sustaining capital expenditures (excluding capitalized stripping costs)

 

$

 

11,500 - 14,500

 

 

 

US$

 

9,000 - 11,000

 

 

(1)         The cash operating costs excluding royalties and total cash costs reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this MD&A. The estimated average annual R$/US$ and $/US$ exchange rates used are approximately 4.50 and 1.30, respectively.

 

(2)         These measures exclude royalties. Every US$1/lb in the V2O5 price realized by the Company in revenues adds approximately US$0.05/lb in royalties.

 

Reserves and Resources

 

On October 16, 2017, the Company disclosed mineral reserve and mineral resource estimates with an effective date of May 2, 2017 in a report titled Maracás Menchen Project, Bahia, Brazil An Updated Mine Plan, Mineral Reserve and Preliminary Economic Assessment of the Inferred Resources (the “Technical Report”), prepared by GE21 Consultoria Mineral Ltda (“GE21”).

 

The Mineral Resources for the Campbell deposit are estimated from diamond drill core information stored in a secured central database and were evaluated using a geostatistical block modelling approach. A three-

 

8

 

dimensional block model was generated to enable grade estimation. The selected block size was based on the geometry of the domain interpretation and the data configuration. The block size of 5 m E by 5 m N by 5 m RL was selected. The “percent” block modelling technique was used to represent the volume of the interpreted wireframe models. Sufficient variables were included in the block model construction to enable grade estimation and reporting.

 

Resource estimation for the Campbell deposit was undertaken using ordinary kriging (“OK”) as the principal estimation methodology for V2O5. The OK estimates were completed using Gemcom mining software. In 2016, Largo updated mineral resource estimate for the Campbell deposit as a result of depletion of mined resources. This Measured and Indicated resource was used to update the reserve and used for the new mine plan presented in the Technical Report prepared by GE21.

 

The new block model incorporates percent magnetics (percent of magnetic minerals in the mineralized rock) and magnetite concentrate grade for V2O5 and SiO2. No new drilling was available for the estimate; however, it was adjusted for mining completed to date. The updated Mineral Resources for the Campbell deposit are presented below:

 

Campbell Mineral Resources — Maracás Menchen Mine
Effective date: May 2, 2017

 

Category

 

Tonnes
(million)

 

V2O5 head grade
(%)

 

V2O5 contained
(kt)

 

V2O5 in concentrate
(%)

 

Magnetics
(%)

 

Measured (M)

 

18.08

 

1.19

 

215.0

 

3.19

 

30.55

 

Indicated (I)

 

1.70

 

1.28

 

21.7

 

3.12

 

34.64

 

Total M&I

 

19.78

 

1.20

 

236.7

 

3.19

 

30.90

 

Inferred

 

1.65

 

1.20

 

19.8

 

3.10

 

33.08

 

 

Resources within a pit shell using US$34.20/t all in operating cost and reported at a 0.45% V2O5 cut-off, reviewed and confirmed by Fabio Valério Xavier (GE21).

 

Mineral Reserves have been estimated for the Campbell deposit with an effective date of May 2, 2017. The mine plan developed in the Technical Report is based on Measured and Indicated resources only as delineated in the table above. Reserves are reported using a sales price of US$6.34 per lb of V2O5. The ultimate pit design and mine plan was done to optimize kiln feed. The open pit Mineral Reserve estimate is based on a mine plan and open pit designs developed using modifying parameters including metal prices, metal recovery based on performance of the processing plant, operating and sustaining capital cost estimates based on the production schedule and equipment requirements. Other factors including; dilution, mining recovery, shipping terms, geotechnical characteristics of the rock mass, and the likelihood of obtaining land title, required permits environmental, social and legal licenses may affect the final Mineral Resources and Reserves.

 

The Mineral Reserves presented below were estimated by Porfírio Cabaleiro Rodriguez of GE21, who is a qualified person under NI 43-101 and a Member of the Australian Institute of Geoscientists.

 

Campbell Mineral Reserves — Maracás Menchen Mine
Block dimensions 5x5x5 (m) — Mine Recovery 100% and Dilution 5%
Effective date: May 2, 2017

 

Reserve Category

 

Tonnage
(kt)

 

V2O5 head grade
(%)

 

Magnetics
(%)

 

V2O5 in concentrate
(%)

 

Contained V2O5
(kt)

 

Proven

 

17,570

 

1.14

 

29.66

 

3.21

 

167.3

 

Probable

 

1,440

 

1.26

 

33.89

 

3.20

 

15.6

 

Total in pit Reserve

 

19,010

 

1.15

 

29.98

 

3.21

 

182.9

 

 

Notes to mineral reserve and mineral resource estimates:

 

(1)         A probable mineral reserve is the economically mineable part of an indicated mineral resource, and in some circumstances, measured mineral resource.

 

(2)         A proven mineral reserve is, in most common circumstances, the economically mineable part of a measured mineral resource.

 

(3)         Mineral reserves are included in measured and indicated resources.

 

(4)         The reference point at which mineral reserves are defined is the point where the ore is delivered from the open pit to the crushing plant.

 

(5)         The mineral resource and mineral reserve estimates are reported in accordance with the National Instrument 43-101 — Standards of Disclosure for Mineral Projects (NI 43-101) and the CIM Definition Standards on Mineral Resources and Reserves (CIM Definition Standards) as a minimum standard.

 

The Company also completed a revised block model and updated mineral resource estimate for the Near Mine Targets incorporating the drilling from the 2011 program including 72 holes totalling 13,401 m. The Near Mine

 

9

 

Targets which extend north from Gulçari A for eight kilometres include from south to north: Gulçari A Norte, Gulçari B, São José, Novo Amparo and Novo Amparo Norte. All are hosted in the Rio Jacaré Intrusion.

 

The Mineral Resources presented in the following table are considered current (subject to the update for Novo Amparo Norte in the following “Recent Developments” section) and do not include any drill results from the 2018 or 2019 drill programs.

 

Satellite Deposits Mineral Resources
Effective date: May 2, 2017

 

Deposits

 

Category

 

Tonnes
(kt)

 

V2O5
(%)

 

Contained V2O5
(t)

 

Gulçari A Norte**

 

Inferred

 

9,730

 

0.84

 

81,388

 

Gulçari B**

 

Inferred

 

2,910

 

0.70

 

20,312

 

Novo Amparo**

 

Inferred

 

1,560

 

0.72

 

11,255

 

Novo Amparo Norte**

 

Inferred

 

9,720

 

0.87

 

84,453

 

São José**

 

Inferred

 

3,900

 

0.89

 

34,706

 

Satellite Deposits (Total)**

 

Inferred

 

27,820

 

0.83

 

232,114

 

 

** Resources within a pit shell using US$34.20/t all in operating cost and reported at a 0.45% V2O5 cut-off, reviewed and confirmed by Porfírio Cabaleiro Rodriguez (GE21).

 

Notes to mineral reserve and mineral resource estimates:

 

(1)         Mineral resources within a pit shell using US$34.20/t all in operating cost and reported at a 0.45% V2O5 cut-off, reviewed and confirmed by Fabio Valério Xavier (GE21).

 

(2)         Mineral resources are classified as measured, indicated and inferred based on relative levels of confidence in their estimation and on technical and economic parameters consistent with the methods most suitable to their potential commercial exploitation.

 

(3)         The mineral resource and mineral reserve estimates are reported in accordance with the National Instrument 43-101 — Standards of Disclosure for Mineral Projects (NI 43-101) and the CIM Definition Standards on Mineral Resources and Reserves (CIM Definition Standards) as a minimum standard.

 

(4)         The PEA is preliminary in nature and includes only inferred mineral resources that are considered too speculative geologically to have any economic consideration applied to them that would enable them to be categorized as a mineral reserve.  There is no certainty that the PEA will be realized. These results have no impact on the results of any pre-feasibility or feasibility with respect to the Maracás Menchen Mine.

 

GE21 recommended the Near Mine Targets be developed sequentially as follows: Novo Amparo Norte, Gulçari A Norte & Gulçari B, São José, Campbell in pit resources and Novo Amparo.

 

The Technical Report prepared by GE21 was designed to allow the Company to more fully optimize operations in order to maximize the Maracás Menchen Mine’s NPV and is based on the production of V2O5 from the Maracás Menchen Mine’s mineral resources as well as from its established mineral reserves. The report does not provide any credit for by-products, however Largo will continue to evaluate the technical and economic viability of all potential by-products. The Technical Report respects the definition of PEA as described in the CSA Staff Notice 43-307 — Mining Technical Report — Preliminary Economic Assessments, issued by the Canadian Securities Administrators on August 16, 2012.

 

Qualified Persons

 

Porfírio Cabaleiro Rodriguez, Mining Engineer, BSc (Mine Eng), MAIG employed by GE21, Leonardo Apparicio da Silva, Mining Engineer, BSc (Min Eng), MSc (Met Eng), MAIG associated to GE21, and Fabio Valerio Xavier, Geologist, BSc, Geol, MAIG associated to GE21, are the Qualified Persons as defined in NI 43-101 responsible for the Technical Report and are all independent of the Company.

 

Quality Assurance Quality Control

 

The scientific and technical information in this reserves and resources section of the MD&A has been reviewed and approved by Porfírio Cabaleiro Rodriguez, Mining Engineer, BSc (Mine Eng), MAIG, GE21 director; Leonardo Apparicio da Silva, Mining Engineer, BSc (Min Eng), MSc (Met Eng), MAIG; and Fabio Valerio Xavier, Geologist, BSc, Geol, MAIG, both employed by GE21, all of whom are Qualified Persons as defined in NI 43-101.

 

Recent Developments

 

The Company completed a two-phase exploration program in 2018. Phase I was a 2,000 metre in-pit drill program designed to further define the reserve block model for production over the next two to three years in the Campbell pit. This program began in the middle of April 2018 and was completed on May 30, 2018. The in-pit program

 

10

 

completed 31 holes totalling 2,323 metres. The data was modelled and used for mine planning and development purposes. Consultants from GE21 assisted in the modelling.

 

Phase II included a 4,950 metre drilling program focused on upgrading and expanding the Near Mine Targets and along strike high priority targets. Drilling began on June 4, 2018 with two rigs focused at Novo Amparo Norte and the Company completed 24 holes totalling 4,223 metres prior to December 31, 2018. This included 13 infill and 11 step out holes. On December 19, 2018, the Company announced that this program had expanded the mineralization to the north and south at Novo Amparo Norte. Infill drilling was designed to upgrade the resource category at Novo Amparo Norte. Additionally, seven holes were drilled on targets south of the Campbell pit. The drill program was completed on October 23, 2018.

 

The Company extended the Phase II definition drilling program at Novo Amparo Norte in the first quarter of 2019.  Diamond drilling was initiated at Novo Amparo Norte on January 15, 2019. In total, 47 diamond drill holes (5,404 metres) were completed. The work focused on increasing confidence in the resource categories and extending mineralisation at depth and along strike.  This program was completed mid-February 2019. On June 11, 2019, the Company reported a new resource estimate for Novo Amparo Norte based on 12,911 metres (88 drill holes) of drilling with an effective date of May 31, 2019.

 

Novo Amparo Norte Mineral Resources
Effective date: May 31, 2019

 

Category

 

Tonnes
(million)

 

V2O5 head grade
(%)

 

Magnetics
(%)

 

Magnetic
concentrate V2O5
(%)

 

V2O5 contained in
magnetic concentrate
(t)

 

Measured (M)

 

6.25

 

0.91

 

33.1

 

2.32

 

48,046

 

Indicated (I)

 

5.98

 

0.85

 

28.1

 

2.50

 

41,996

 

Total M&I

 

12.23

 

0.88

 

30.7

 

2.41

 

90,042

 

Inferred

 

11.33

 

0.90

 

31.2

 

2.46

 

86,960

 

 

(1)         Mineral Resources have been classified using the Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”), CIM Standards on Mineral Resources and Reserves, Definitions and Guidelines prepared by the CIM Standing Committee on Reserve Definitions and adopted by the CIM Council.

 

(2)         Mineral Resources which are not Mineral Reserves do not have demonstrated economic viability.  The Inferred Mineral Resource in this estimate has a lower level of confidence than that applied to the Measured and Indicated Mineral Resource.  It is reasonably expected that a portion of the Inferred Mineral Resource could be upgraded to an Indicated Mineral Resource with continued exploration.

 

(3)         Magnetic content is determined by Davis Tube Test methodology.  V2O5 content of the magnetic concentrate was determined by XRF79C methodology at the SGS facility in Belo Horizonte, Brazil.

 

(4)         Assuming only mineralized zones grading 0.45% V2O5 or greater

 

(5)         Numbers may not add up exactly due to rounding.

 

In Q2 2019 exploration work shifted to the Novo Amparo deposit where 4,646 metres (24 drill holes) of drilling were completed. Drilling was also completed at the São José deposit where 2,813 metres (18 drill holes) of drilling were completed. Further drilling was carried out on the Gulçari A Norte and Gulçari B (now considered as one target). Drilling on all targets focused on extending and upgrading known mineralization as defined in the 2017 Technical Report. The Company also completed 1,177 metres of drilling (three holes) neat the Campbell pit to explore for target horizons down dip and along strike of the current reserve area.

 

In Q4 2019 work focused primarily on the Gulçari A South target where 2,313 metres (16 drill holes) were completed.

 

Based on all diamond drilling across the Near Mine Targets, a new geological interpretation of the Rio Jacaré intrusion was formulated that has helped the Company to better understand the intrusive complex to improve drilling targeting and interpretation of mineralized zones. Diamond drilling was completed in early December 2019 and all analytical data has now been received.

 

Work in Q1 2020 focused primarily on compiling and collating all technical data from the 2019 exploration program, geological modelling on known deposits, identifying and collecting representative material from deposits for metallurgical testing and reviewing the Campbell pit database. A test soil geochemical survey program was undertaken over portions of the Near Mine Targets area to determine the effectiveness of this exploration technique in conjunction with magnetic surveying, mapping and rock sampling to further identify and prioritise potential drill targets in the South Block exploration area.

 

11

 

Outlook

 

The Company has developed an Exploration Master Plan (“EMP”) for 2019 to 2021 to advance known deposits, increase resources and reserves, further evaluate the potential for along strike continuation of the vanadium rich magnetite mineralization and to maintain the Company’s mineral concessions to the north and south of the Campbell deposit. The EMP includes ground magnetic surveys, mapping, sampling, drilling and modelling of deposits on the mineral concessions. Where required, landowners are being contacted for permission to access their lands to perform exploration work. In addition, necessary permits for vegetation suppression are in process and upon receipt, the Company will continue with its planned exploration program.

 

The Company has planned for 22,500 m of drilling on the Near Mine Targets in 2020, primarily to upgrade and expand known resources to determine initial mining opportunities. Additional drilling (7,500 m) has been planned in and around the Campbell pit to test for down dip continuations of known mineralisation.  Mineralisation at the Campbell pit remains open at depth based on current drill results. Exploration on the South Block will include a soil geochemistry sampling survey and 9,600 m of drilling on higher priority targets based on geological, geophysical and geochemical data.

 

The COVID-19 pandemic has caused delays in the start of the 2020 drilling program and work will commence as soon as the drill contractor and the Company are able to mobilise people and equipment to the mine site based on government recommendations and policy and safety concerns for mine site personnel and contractors.

 

Campo Alegre de Lourdes

 

Recent Developments

 

The Company completed a 1,200 metre drilling program in December 2018 and has finalized the geological and structural mapping needed to satisfy the Company’s contractual requirements and to develop the Company’s knowledge of mineralization.

 

In Q3 2019, a limited drill program was completed at the Morro Branca target at the Campo Alegre de Lourdes project.   From July 5 to August 5, 2019 the Company completed six diamond drill holes (1,016 metres) to test down dip extension of mineralisation and to collect material for additional metallurgical testing at the Morro Branca target.  Internal studies to determine potential recovery of both V2O5 and TiO2 from the vanadiferous titanomagnetite (“VTM”) mineralisation are being complimented with additional work currently underway at SGS Lakefield’s facility in Canada.  This metallurgical testing continues and is being supplemented through the Company’s internal work. The agreement with Companhia Baiana de Pesquisa Mineral (“CBPM”) expired on January 11, 2020.  Prior to expiration the Company met with CBPM representatives and agreed to extend the Research Agreement for an additional two years to allow the Company to continue to evaluate the geological and economic potential of the project and the renewed agreement now extends the working relationship to January 11, 2022.

 

During Q1 2020, the Company incurred $79 in expenditures (Q1 2019 — $202) at the Campo Alegre de Lourdes project.

 

Outlook

 

Additional metallurgical work is planned in 2020. The Company will continue to evaluate all technical information and will formulate an appropriate work program based on continued metallurgical testing.

 

Northern Dancer

 

Recent Developments

 

Management is not conducting any further work at this time on the Northern Dancer property, as the majority of the Company’s efforts are focused on the Maracás Menchen Mine.

 

During Q1 2020, the Company incurred $2 in expenditures (Q1 2019 — $2) at the Northern Dancer project.

 

Outlook

 

Management is not planning any significant expenditures for the foreseeable future.

 

12

 

Currais Novos Tungsten Tailings Project

 

Recent Developments

 

Management is not conducting any work at this time on the Currais Novos Tungsten Tailings Project, as the majority of the Company’s efforts are focused on the Maracás Menchen Mine.

 

Outlook

 

Management is not planning any significant expenditures for the foreseeable future.

 

FINANCIAL INSTRUMENTS

 

Financial assets and financial liabilities at March 31, 2020 and December 31, 2019 were as follows:

 

 

 

March 31,
2020

 

December 31,
2019

 

Cash

 

$

206,137

 

$

166,077

 

Restricted cash

 

—

 

99

 

Amounts receivable

 

225

 

247

 

Accounts payable and accrued liabilities

 

86,018

 

101,360

 

Current portion of long-term debt

 

35,210

 

—

 

 

The Company’s risk exposures and the impact on the Company’s financial instruments are summarized in note 18. There have been no changes in the risks, objectives, policies and procedures from the previous year.

 

LIQUIDITY AND CAPITAL RESOURCES

 

The Company’s continuance as a going concern is dependent on its ability to maintain profitable levels of operations.

 

At December 31, 2019, the price per lb of V2O5 was between US$4.80 and US$5.85. This increased to a range of between US$5.05 and US$6.10 at March 31, 2020, with an average of approximately US$6.07 for Q1 2020, compared with approximately US$16.34 for Q1 2019 and US$5.37 for Q4 2019. The price increase since Q4 2019 is the primary factor behind the positive re-measurement of trade receivables / payables seen in Q1 2020.

 

The Company’s cash and revenue adjustment payable(3) balances are:

 

 

 

March 31,
2020

 

December 31,
2019

 

Cash

 

$

206,137

 

$

166,077

 

Revenue adjustment payable(3)

 

$

91,933

 

$

95,683

 

 

The average price per lb of V2O5 was approximately US$6.45 for April 2020. At the date of the MD&A, the market price of V2O5 was in a range of US$6.50 to US$7.25 per lb.

 

The Company is continuing to monitor the rapidly developing impacts of the COVID-19 pandemic and will take all possible actions to help minimize the impact on the Company and its people. Given these uncertainties, the Company secured two credit facilities in Q1 2020 to provide it with additional cash resources should the impacts be significant.

 

The Company’s cash balance and the revenue adjustment payable(3) at April 30, 2020 were $204,558 and $89,335, respectively. Assuming an increase or decrease in the V2O5 price of US$1.00/lb after April 30, 2020, the Company expects the revenue adjustment payable(4) to impact future periods (positively or negatively) by approximately US$3,949 ($5,489 using a foreign exchange rate of 1.39).

 

The adequacy of the Company’s capital structure is assessed on an ongoing basis and adjusted as necessary after taking into consideration the Company’s strategy, vanadium prices, economic conditions and associated risks. To maintain or adjust its capital structure, the Company may adjust capital expenditures, issue new common shares or

 

(3)  The revenue adjustment payable and estimated revenue adjustment payable for V2O5 sold are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this MD&A.

 

13

 

take on new debt. At March 31, 2020, the Company’s debt balance was $35,210 as a result of securing the two credit facilities as discussed above and as described in note 10.

 

Credit facilities

 

On March 18, 2020, the Company secured a US$13,000 credit facility with a bank in Brazil. This facility was fully drawn down and proceeds of R$65,980 ($17,403) were received on March 20, 2020. This facility is due to be repaid as a lump sum payment on March 12, 2021, together with accrued interest at a rate of 3.35% per annum.

 

On March 24, 2020 the Company secured a US$11,788 credit facility with a second bank in Brazil. This facility was fully drawn down and proceeds of R$60,000 ($15,780) were received on March 24, 2020. This facility is due to be repaid as a lump sum payment on March 18, 2021, together with accrued interest at a rate of 6.29% per annum.

 

Maracás Menchen Mine

 

The contract with the Company’s off-take partner commenced in May 2014 and production of vanadium commenced during August 2014, with the first sale of vanadium pentoxide flake concluded during September 2014. Since this time, the Company has continued to further ramp up the production and sales of V2O5, as described in the “Maracás Menchen Mine” section above. In connection with the ramp-up, the Company has also evaluated its future financial requirements, including inter alia its sustaining capital and working capital needs for the next 12 months.

 

At March 31, 2020, the Company had an accumulated deficit of $58,067 since inception (December 31, 2019 — $64,073) and had a net working capital surplus of $116,742 (December 31, 2019 —$102,013) (defined as current assets less current liabilities). The total amount due within 12 months on the Company’s debt is $35,210 (December 31, 2019 — $nil).

 

The following table details the Company’s expected remaining contractual cash flow requirements at March 31, 2020 for its liabilities and commitments with agreed repayment periods. The amounts presented are based

 

on the undiscounted cash flows and therefore, may not equate to the carrying amounts on the consolidated statement of financial position.

 

 

 

Less than
6 months

 

6 months
to 1 year

 

1 to 3 years

 

Over 3 years

 

Accounts payable and accrued liabilities

 

$

85,988

 

$

30

 

$

—

 

$

—

 

Debt

 

—

 

35,210

 

—

 

—

 

Operating and purchase commitments

 

11,351

 

1,749

 

521

 

125

 

 

 

$

97,339

 

$

36,989

 

$

521

 

$

125

 

 

The Company’s principal sources of liquidity are its cash flow from operating activities and cash of $206,137 (December 31, 2019 — $166,077). In response to the vanadium price decreases throughout 2019, the Company has adopted certain measures to manage its liquidity risk including repaying its Notes during the year ended December 31, 2019 and securing two new credit facilities in Q1 2020. Despite these measures, and in conjunction with the current vanadium price environment, a risk exists that the Company will not have sufficient liquidity to meet its obligations as they come due. At March 31, 2020, the Company’s trade receivables was in a liability position of $75,843 and was classified as trade payables within accounts payable and accrued liabilities (refer to notes 9 and 18(a)) (December 31, 2019 —$87,782).

 

OUTSTANDING SHARE DATA

 

(Exercise prices presented in this section are in dollars and not thousands).

 

At March 31, 2020, there were 562,976 common shares of the Company outstanding. At the date of this MD&A, there were 562,976 common shares of the Company outstanding.

 

At March 31, 2020, under the share compensation plan of the Company, 2,405 RSUs were outstanding and 6,775 stock options were outstanding with exercise prices ranging from $0.46 to $3.04 and expiry dates ranging between June 17, 2020 and March 24, 2025. If exercised, the Company would receive proceeds of $5,484. The weighted average exercise price of the stock options outstanding is $0.81.

 

14

 

As of the date of this MD&A, 2,376 RSUs and 6,740 stock options were outstanding with exercise prices ranging from $0.46 to $3.04 and expiry dates ranging between June 17, 2020 and March 24, 2025.

 

At March 31, 2020, 103,994 common share purchase warrants were outstanding with exercise prices ranging from $0.29 to $1.15 and expiring between December 31, 2020 and December 13, 2022. If these warrants were exercised, the Company would receive proceeds of $43,154. The weighted average exercise price of the warrants is $0.41.

 

As of the date of this MD&A, 103,994 common share purchase warrants were outstanding with exercise prices ranging from $0.29 to $1.15 and expiring between December 31, 2020 and December 13, 2022.

 

TRANSACTIONS WITH RELATED PARTIES

 

The Q1 2020 unaudited condensed interim consolidated financial statements include the financial statements of the Company and its subsidiaries. There have been no changes in the Company’s ownership interests in its subsidiaries since December 31, 2019. The Company had transactions with related parties during Q1 2020. Refer to note 15.

 

Additional information regarding the compensation of officers and directors of the Company is disclosed in the Company’s management information circular, which is available under the profile of the Company on SEDAR at www.sedar.com.

 

COMMITMENTS AND CONTINGENCIES

 

At March 31, 2020, the Company was party to certain management and consulting contracts. Minimum commitments under the agreements are approximately $3,130 and all payable within one year. These contracts also require that additional payments of up to approximately $4,695 be made upon the occurrence of certain events such as change of control. As the triggering event has not occurred, the contingent payments have not been reflected in these consolidated financial statements.

 

In 2008, Largo agreed to sell 100% of its vanadium production to Glencore International AG under an off-take agreement which, following the election by the Company, will expire at the end of April 2020. Refer to note 21, subsequent events.

 

The Company has entered into a number of contracts with third party customers to deliver monthly quantities of the Company’s various vanadium products. A significant proportion of the Company’s monthly vanadium production after April 2020 has been committed, with deliveries scheduled to begin in July 2020.

 

The Company’s mining and exploration activities are subject to various federal, provincial and international laws and regulations governing the protection of the environment. These laws and regulations are continually changing and generally becoming more restrictive. The Company has made payments to comply with such laws and regulations.

 

The Company indemnifies its directors and officers against any and all claims or losses reasonably incurred in the performance of their service to the Company to the extent permitted by law. The Company has acquired and maintains liability insurance for its directors and officers.

 

The Company is committed to a minimum amount of rental payments under five leases of office space which expire between October 31, 2020 and December 31, 2023. Minimum rental commitments remaining under the leases are approximately $988, including $356 due within one year. In addition, minimum rental commitments remaining under other short-term leases are approximately $46, all due within one year.

 

At the Company’s Maracás Menchen Mine, the Company has entered into purchase order contracts with remaining amounts due related to goods not received or services not rendered as of March 31, 2020 of $9,582.

 

The Company, through its subsidiaries, is party to legal proceedings in the ordinary course of its operations related to legally binding agreements with various third parties under supply contracts and consulting agreements. At March 31, 2020 two such proceedings were ongoing, each in Brazil. The first relates to a supply agreement for the Maracás Menchen Mine which was filed with the courts in October 2014. The amount claimed totals R$9,900 ($2,705), with a counterclaim filed by Vanádio for R$10,700 ($2,923). A provision of R$1,324 ($362)

 

15

 

has been recognized at March 31, 2020 for the probable loss (December 31, 2019 — R$1,324 ($428)). The second proceeding relates to a consulting agreement dispute for which R$3,900 ($1,065) (December 31, 2019 — R$3,900 ($1,262)) has been claimed against two of the Company’s subsidiaries. No provision has been recognized for this proceeding. The Company and its subsidiaries are also party to legal proceedings regarding labour matters. A provision was recorded at December 31, 2019 for such proceedings in an amount of R$3,468 ($1,122). At March 31, 2020, the provision recognized was R$3,103 ($848). The outcome of these proceedings remains dependent on the final judgment, which the Company does not expect to be delivered within the next 12 months. Management does not expect the outcome of any of the remaining proceedings to have a materially adverse effect on the results of the Company’s financial position or results of operations. Should any losses result from the resolution of these claims and disputes, they will be charged to operations in the period that they are determined.

 

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING

 

Disclosure Controls and Procedures

 

The Company’s disclosure controls and procedures (“DC&P”) are designed to provide reasonable assurance that all relevant information is communicated to management to allow timely decisions regarding required disclosure. An evaluation of the effectiveness of the Company’s DC&P, as defined under the rules of the Canadian Securities Administration, was conducted as at December 31, 2019 under the supervision of the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”) and with the participation of management. Based on the results of that evaluation, the CEO and CFO concluded that the Company’s DC&P were effective as at December 31, 2019 providing reasonable assurance that the information required to be disclosed in the Company’s annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported in accordance with securities legislation.

 

Since the December 31, 2019 evaluation, there have been no material changes to the Company’s DC&P.

 

Internal Control over Financial Reporting

 

Internal control over financial reporting (“ICFR”) is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. ICFR should include those policies and procedures that establish the following:

 

·                      maintenance of records in reasonable detail, that accurately and fairly reflect the transactions and dispositions of assets;

 

·                      reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with applicable IFRS;

 

·                      receipts and expenditures are only being made in accordance with authorizations of management or the Board of Directors; and

 

·                      reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial instruments.

 

The Company’s management, under supervision of the CEO and CFO, assessed the effectiveness of the Company’s ICFR based on the criteria established in Internal Control — Integrated Framework (2013) issued by The Committee of Sponsoring Organizations of the Treadway Commission and concluded that as at December 31, 2019, the Company’s ICFR was effective.

 

During the three months ended March 31, 2020, the Company did not make any significant changes to its ICFR that would have materially affected, or reasonably likely to materially affect, its ICFR.

 

Limitations of Disclosure Controls and Procedures and Internal Control over Financial Reporting

 

The Company’s management, including the CEO and CFO, believe that due to inherent limitations, any DC&P or ICFR, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that any design will not succeed in achieving its stated goals under all potential future conditions. Accordingly, because of the inherent limitations

 

16

 

in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Additionally, management is required to use judgment in evaluating DC&P and ICFR.

 

SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS

 

The preparation of the unaudited condensed interim consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Actual outcomes could differ from these estimates. These unaudited condensed interim consolidated financial statements include estimates, which, by their nature, are uncertain. The impacts of such estimates are pervasive throughout the unaudited condensed interim consolidated financial statements and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised, and the revision affects both current and future periods.

 

Significant areas requiring the use of estimates and assumptions relate to the determination of mineral reserve estimates and the impact on stripping costs, useful lives of mine properties, plant and equipment, impairment analysis of non-financial assets and estimates of the timing of outlays for asset retirement obligations. Other significant areas include the valuation of mine properties, plant and equipment and development properties, estimates of provisions for environmental rehabilitation, current and deferred taxes and contingencies. Refer to note 4(d) of the annual consolidated financial statements for the year ended December 31, 2019 for a detailed description of these areas of significant judgment, estimates and assumptions. Actual results could differ from those estimates.

 

CHANGES IN ACCOUNTING POLICIES

 

The basis of presentation, and accounting policies and methods of their application in the Q1 2020 unaudited condensed interim consolidated financial statements are consistent with those used in the Company’s annual consolidated financial statements for the year ended December 31, 2019.

 

NON-GAAP(4) MEASURES

 

The Company uses certain non-GAAP financial performance measures in its MD&A, which are described in the following section.

 

Revenues Per Pound

 

The Company’s MD&A refers to revenues per pound sold, including vanadium sales per pound sold and revenue adjustment per pound sold.  These are non-GAAP performance measures and are used to provide investors with information about key measures used by management to monitor performance of the Maracás Menchen Mine.

 

These measures, along with cash operating costs per pound produced, are considered to be one of the key indicators of the Company’s ability to generate operating earnings and cash flow from its Maracás Menchen Mine. These revenues per pound measures do not have any standardized meaning prescribed by IFRS and differ from measures determined in accordance with IFRS. These measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These measures are not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.

 

The following tables provide a reconciliation of these measures per pound sold for the Maracás Menchen Mine to revenues as per the Q1 2020 unaudited condensed interim consolidated financial statements.

 

(4)  GAAP — Generally Accepted Accounting Principles.

 

17

 

 

 

Three months ended

 

 

 

March 31,
2020

 

March 31,
2019

 

Revenues(1)

 

$

58,186

 

$

44,314

 

V2O5 sold (000s lb)

 

6,989

 

4,630

 

Revenues per pound sold ($/lb)

 

$

8.33

 

$

9.57

 

Revenues per pound sold (US$/lb)(2)

 

$

6.31

 

$

7.19

 

 

 

 

 

 

 

Vanadium sales from a contract with a customer(1)

 

$

55,809

 

$

101,403

 

V2O5 sold (000s lb)

 

6,989

 

4,630

 

Vanadium sales per pound sold ($/lb)

 

$

7.99

 

$

21.90

 

Vanadium sales per pound sold (US$/lb)(2)

 

$

6.05

 

$

16.46

 

 

 

 

 

 

 

Re-measurement of trade receivables / payables(1)

 

$

2,377

 

$

(57,089

)

V2O5 sold subject to re-measurement (000s lb)

 

8,598

 

5,534

 

Revenue adjustment per pound ($/lb)

 

$

0.28

 

$

(10.32

)

Revenue adjustment per pound (US$/lb)(2)

 

$

0.21

 

$

(7.75

)

 

(1)         As per note 19.

(2)         Calculated from “$/lb” using average $/US$ foreign exchange rates of 1.32 and 1.33 for Q1 2020 and Q1 2019, respectively.

 

Cash Operating Costs Per Pound

 

The Company’s MD&A refers to cash operating costs per pound, a non-GAAP performance measure, in order to provide investors with information about a key measure used by management to monitor performance. This information is used to assess how well the Maracás Menchen Mine is performing compared to plan and prior periods, and also to assess its overall effectiveness and efficiency.

 

Cash operating costs includes mine site operating costs such as mining costs, plant and maintenance costs, sustainability costs, mine and plant administration costs, royalties and sales, general and administrative costs (all for the mine properties segment), but excludes depreciation and amortization, share-based payments, foreign exchange gains or losses, commissions, reclamation, capital expenditures and exploration and evaluation costs.  These costs are then divided by the pounds of vanadium sold from the Maracás Menchen Mine to arrive at the cash operating costs per pound. Prior to 2020, these costs were divided by the pounds of production from the Maracás Menchen Mine, rather than pounds sold. These periods have been recalculated using pounds sold in the following table. This measure differs to the new total cash costs non-GAAP measure the Company will use to measure its performance starting in 2020 (see later in this section).

 

These measures, along with revenues, are considered to be one of the key indicators of the Company’s ability to generate operating earnings and cash flow from its Maracás Menchen Mine. These cash operating costs measures do not have any standardized meaning prescribed by IFRS and differ from measures determined in accordance with IFRS. These measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These measures are not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.

 

In addition, the Company’s MD&A refers to cash operating costs excluding royalties. This is a non-GAAP performance measure and is calculated as cash operating costs less royalties, as disclosed in the following table.

 

The following table provides a reconciliation of cash operating costs per pound for the Maracás Menchen Mine to operating costs as per the Q1 2020 unaudited condensed interim consolidated financial statements.

 

18

 

 

 

Three months ended

 

 

 

March 31,
2020

 

March 31,
2019

 

Operating costs(1)

 

$

36,423

 

$

29,071

 

Professional, consulting and management fees(2)

 

1,159

 

1,270

 

Other general and administrative expenses(2)

 

329

 

268

 

Less: depreciation and amortization expense(1)

 

(8,933

)

(7,281

)

Cash operating costs

 

$

28,978

 

$

23,328

 

Less: royalties(1)

 

(3,202

)

(2,326

)

Cash operating costs excluding royalties

 

$

25,776

 

$

21,002

 

V2O5 sold (000s lb)(3)

 

6,989

 

4,630

 

Cash operating costs per pound ($/lb)(3)

 

$

4.15

 

$

5.04

 

Cash operating costs per pound (US$/lb)(3), (4)

 

US$

3.14 

 

US$

3.79

 

Cash operating costs excluding royalties per pound ($/lb)(3)

 

$

3.69

 

$

4.54

 

Cash operating costs excluding royalties per pound (US$/lb)(3), (4)

 

US$

2.79

 

US$

3.41

 

 

(1)         As per note 20.

(2)         As per the Mine properties segment in note 16.

(3)         Cash operating costs per pound and cash operating costs excluding royalties per pound for Q1 2019 were previously calculated and presented on a pounds produced basis (V2O5 produced (000s lb) = 4,627; V2O5 sold (000s lb) = 4,630). These measures have been calculated and presented on a pounds sold basis in this MD&A, with no difference in the amounts calculated.

(4)         Calculated from “$/lb” using average $/US$ foreign exchange rates of 1.32 and 1.33 for Q1 2020 and Q1 2019, respectively.

 

Total Cash Costs

 

The Company’s MD&A refers to total cash costs, a non-GAAP performance measure, in order to provide investors with information about a key measure used by management to monitor performance. This information is used to assess how well the Company is performing at producing and selling vanadium products compared to plan and prior periods, and also to assess its overall effectiveness and efficiency.

 

Total cash costs are a non-GAAP performance measure that includes mine site operating costs (as for cash operating costs), sales and distribution costs and the Company’s total professional, consulting and management fees and other general and administrative expenses. Total cash costs exclude royalties, depreciation and amortization, share-based payments, foreign exchange gains or losses, commissions, reclamation costs, exploration and evaluation costs and capital expenditures. These costs are then divided by the pounds of vanadium sold by the Company to arrive at total cash costs.

 

This measure differs from cash operating costs per pound in that it includes all sales and distribution costs, professional, consulting and management fees and other general and administrative expenses, rather than just those from the Mine properties segment, and is calculated on pounds sold rather than pounds produced. The Company believes this will be a more accurate reflection of its unit costs given the anticipated difference between pounds produced and pounds sold after the end of the Company’s off-take agreement on April 30, 2020.

 

This total cash costs measure does not have any standardized meaning prescribed by IFRS and differs from measures determined in accordance with IFRS. This measure is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. This measure is not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.

 

The following table provides a reconciliation of total cash costs to operating costs as per the Q1 2020 unaudited condensed interim consolidated financial statements.

 

19

 

 

 

Three months ended

 

 

 

March 31,
2020

 

Operating costs(1)

 

$

36,423

 

Professional, consulting and management fees(2)

 

2,289

 

Other general and administrative expenses(2)

 

1,175

 

Less: depreciation and amortization expense(1)

 

(8,933

)

Less: royalties(1)

 

(3,202

)

 

 

$

27,752

 

V2O5 sold (000s lb)

 

6,989

 

Total cash costs ($/lb)

 

$

3.97

 

Total cash costs (US$/lb)(3)

 

US$

 3.01

 

 

(1)         As per note 20.

(2)         As per the condensed interim consolidated statement of income (loss) and comprehensive income (loss).

(3)         Calculated from “$/lb” using average $/US$ foreign exchange rate of 1.32 for Q1 2020.

 

Revenue Adjustment Payable

 

The Company’s MD&A refers to revenue adjustment payable, a non-GAAP performance measure used to provide investors with information about a key measure used by management as part of its monitoring of the financial liquidity of the Company.

 

This measure is considered to be one of the key components monitored relating to the Company’s projected financial liquidity and capital resources. This revenue adjustment payable does not have any standardized meaning prescribed by IFRS and differs from measures determined in accordance with IFRS. This measure is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance, financial liquidity or capital resources prepared in accordance with IFRS. This measure is not necessarily indicative of cash flow from operating activities or disclosed commitments as determined and presented under IFRS.

 

The following table provides a reconciliation of this measure to trade receivables / payables as per the Q1 2020 unaudited condensed interim consolidated financial statements.

 

 

 

March 31,
2020

 

December 31,
2019

 

Trade payables(1)

 

$

75,843

 

$

87,782

 

Add: amounts to be received included in trade payables

 

16,090

 

7,901

 

Revenue adjustment payable

 

$

91,933

 

$

95,683

 

 

(1)         As per note 9.

 

RISKS AND UNCERTAINTIES

 

The Company is subject to various business, financial and operational risks that could materially adversely affect the Company’s future business, operations and financial condition. These risks could cause such future business, operations and financial condition to differ materially from the forward-looking statements and information contained in this MD&A and as described in the Cautionary Statement Regarding Forward-Looking Information found in this MD&A.

 

The Company’s business activities expose it to significant risks due to the nature of mining, development and exploration activities. The ability to manage these risks is a key component of the Company’s business strategy.  Management is forward looking in its assessment of risks. Identification of key risks occurs in the course of business activities, pursuing approved strategies and as part of the execution of risk oversight responsibilities at the management and Board of Directors’ level.

 

For a full discussion of the Company’s Risks and Uncertainties, please refer to the Annual Information Form for the year ended December 31, 2019, which is filed to the Company’s profile on SEDAR at www.sedar.com.

 

20

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

 

The information presented in this MD&A contains “forward-looking information” and “forward-looking statements” within the meaning of applicable Canadian and United States securities laws concerning the Company’s projects, capital, anticipated financial performance, business prospects and strategies and other general matters. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those included in the forward-looking information. The use of words such as “intend”, “anticipate”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “should”, “believe” and similar expressions are intended to identify forward-looking information. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance are not statements of historical fact and may constitute forward-looking information. Statements relating to mineral resources are also forward-looking information, as they involve the implied assessment, based on certain estimates and assumptions that the mineral resources described can be profitably produced in the future. There is no certainty that it will be commercially viable to produce any portion of the mineral resources.

 

Forward-looking information includes statements with respect to: the Company’s goals regarding development of its projects and further exploration and development of its properties; the Company’s proposed plans for advancing its projects, and potential future exploration and development projects; expectations regarding the continuity of mineral deposits; future prices of V2O5; future production at our Maracás Menchen Mine; the extent and overall impact of the COVID-19 pandemic; the results in the Technical Report including resource estimates; expectations regarding any environmental issues that may affect planned or future exploration and development programs and the potential impact of complying with existing and proposed environmental laws and regulations; receipt and timing of third party approvals; government regulation of mineral exploration and development operations in Brazil; expectations regarding any social or local community issues in Brazil that may affect planned or future exploration and development programs; and statements in respect of V2O5 demand and supply. These statements and information are only predictions based on current information and knowledge, some of which may be attributed to third party industry sources. Actual future events or results may differ materially. Undue reliance should not be placed on such forward-looking information, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. By its nature, forward-looking information involves numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking information will not be realized.

 

The following are some of the assumptions upon which forward-looking information is based: that general business and economic conditions will not change in a material adverse manner; demand for, and stable or improving price of V2O5; receipt of regulatory and governmental approvals, permits and renewals in a timely manner; that the Company will not experience any material accident, labour dispute or failure of plant or equipment or other material disruption in the Company’s operations at the Maracás Menchen Mine; the availability of financing for operations and development; the Company’s ability to procure equipment and operating supplies in sufficient quantities and on a timely basis; that planned expansion at the Maracás Menchen Mine will be completed in budget and in a reasonable timeframe and that the results of such expansion will be sufficient to expand the existing resources consistent with management’s expectations; that the estimates of the resources and reserves at the Maracás Menchen Mine are within reasonable bounds of accuracy (including with respect to size, grade and recovery); that the Company’s current expansion of development programs and objectives can be achieved; the Company’s ability to attract and retain skilled personnel and directors; and the accuracy of the Company’s mineral resource estimates (including size, grade and recoverability) and the geological, operational and price assumptions on which these are based.

 

Actual results could differ materially from those anticipated in this forward-looking information as a result of the risks and uncertainties including, without limitation:  volatility in prices of, and demand for, V2O5; risks inherent in mineral exploration and development; uncertainties associated with estimating mineral resources; uncertainties related to title to the Company’s mineral projects; revocation of government approvals; tightening of the credit markets, global economic uncertainty and counterparty risk; failure of plant, equipment or processes to operate as anticipated; unexpected events and delays during construction and development; competition for, among other things, capital and skilled personnel; geological, technical and drilling problems; fluctuations in foreign

 

21

 

exchange or interest rates and stock market volatility; rising costs of labour and equipment; risks associated with political and/or economic instability in Brazil; inherent uncertainties involved in the legal dispute resolution process, including in foreign jurisdictions; changes in income tax and other laws of foreign jurisdictions; and other factors discussed under “Risk Factors” in the Company’s Annual Information Form for the year ended December 31, 2019 which is filed to the Company’s profile on SEDAR at www.sedar.com, and any additional risks as included in “Risks and Uncertainties” above. Assumptions relating to the potential mineralization of the Maracás Menchen Mine are discussed in the Technical Report which is available under the Company’s profile on SEDAR.

 

Additional risks and uncertainties not currently known to the Company, or that the Company currently deems to be immaterial, may also materially and adversely affect the Company’s business and prospects. Should one or more of these risks and uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in forward-looking information. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking information, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. The reader is cautioned not to place undue reliance on forward-looking information.

 

The forward-looking information is presented in this MD&A for the purpose of assisting investors in understanding the Company’s plans, objectives and expectations in making an investment decision and may not be appropriate for other purposes. This forward-looking information is expressly qualified in its entirety by this cautionary statement. Forward-looking information contained in this MD&A or documents incorporated herein by reference are made as of the date hereof or the document incorporated herein by reference, as applicable, and are accordingly subject to change after such date. The Company disclaims any obligation to update any such forward-looking information to reflect events or circumstances after the date of such information, or to reflect the occurrence of anticipated or unanticipated events, except as required by law.

 

The information presented contains “forward-looking statements”, within the meaning of the United States Private Securities Litigation Reform Act of 1995, and “forward-looking information” under similar Canadian legislation, concerning the business, operations and financial performance and condition of the Company. Forward-looking statements and forward-looking information include, but are not limited to, statements with respect to the estimation of mineral reserves and mineral resources; the realization of mineral reserve estimates; the timing and amount of estimated future production; costs of production; metal prices and demand for materials; capital expenditures; success of exploration and development activities; permitting time lines and permitting, mining or processing issues; government regulation of mining operations; environmental risks; and title disputes or claims. Generally, forward-looking statements and forward-looking information can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “guidance”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”.  Certain terms appearing in the following table are defined previously in this MD&A.  This table contains the material forward-looking statements made by the Company in this MD&A, the assumptions made by the Company in making those statements and the risk factors associated with those assumptions.

 

Forward-looking
Statements

 

Assumptions

 

Risk Factors

The Q1 2020 unaudited condensed interim consolidated financial statements were prepared on a going concern basis. The going concern basis assumes that the Company will continue in operation for the foreseeable future

 

The Company has assumed that it will be able to continue in operation for the foreseeable future and will be able to discharge its liabilities and commitments in the normal course of business, as it anticipates

 

The Company’s continuance as a going concern is dependent on its ability to maintain profitable levels of operations.

 

Given the volatility in the market price of V2O5 since December 31, 2019, the Company anticipates that it could continue to realize significant re-measurements of trade receivables / payables in future periods until such time as prices stabilize or the off-take agreement ends.

 

22

 

Forward-looking
Statements

 

Assumptions

 

Risk Factors

and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business.

 

that it will address working capital and other shortfalls through positive cash flow from operations.

 

The adequacy of the Company’s capital structure is assessed on an ongoing basis and adjusted as necessary after taking into consideration the Company’s strategy, vanadium prices, economic conditions and associated risks. To maintain or adjust its capital structure, the Company may adjust capital expenditures, issue new common shares or take on new debt. At March 31, 2020, the Company’s debt balance was $35,210 as a result of securing two credit facilities as described in note 10.

 

 

 

 

 

Production volumes are expected to achieve the expanded nameplate capacity of 1,000 tonnes per month during 2020.

 

2020 Production Guidance:

11,750 – 12,250 tonnes

 

The Company assumes that consistent production levels will continue at a level of or in excess of 1,000 tonnes per month.

 

The Company prepares future production estimates with respect to existing operations.
 

Actual production and costs may vary from the estimates for a variety of reasons such as estimates of grade, tonnage, dilution and metallurgical and other characteristics of the ore varying from the actual ore mined, revisions to mine plans, risks and hazards associated with mining, adverse weather conditions, unexpected labour shortages or strikes, equipment or design failures and other interruptions in production.

Production costs may also be affected by increased mining costs, variations in predicted grades of the deposits, increases in level of ore impurities, labour costs, raw material costs, inflation and fluctuations in currency exchange rates. Failure to achieve production targets or cost estimates could have a material adverse impact on the Company’s sales, profitability, cash flow and overall financial performance.

In the event that the Company obtains debt financing, repayment terms associated with such financing will likely be based, among other things, on production schedule estimates. Any failure to meet such timelines or to produce amounts forecast may constitute defaults under such debt financing, which could result in the Company having to repay loans.

 

 

 

 

 

2020 Costs Guidance: Cash operating costs excluding royalties(1)

US$3.05 – 3.25
Total cash costs(1) US$3.45 – 3.65

(1) These measures are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this MD&A.

 

The Company assumes that its current estimation of future operating costs is accurate, as it is largely based on the current cost profile of operations at the Maracás Menchen Mine.

 

Capital and operating cost estimates made by management with respect to future projects, or current operations in the early stages of production are estimates which are in turn based, among other things, on interpretation of geological data, feasibility studies, anticipated climactic conditions and other information.

Any or all of the above could affect the accuracy of the estimates including unanticipated changes in grade and tonnage to be mined and processed; incorrect data on which engineering assumptions are made; unanticipated transportation costs; accuracy of

 

23

 

Forward-looking
Statements

 

Assumptions

 

Risk Factors

 

 

 

 

equipment and construction cost estimates; difficulty or failure to meet scheduled construction completion dates, facility or equipment commissioning dates, or metal production dates; poor or unsatisfactory construction quality resulting in failure to meet completion, commissioning or production dates; increased expenditures required as a failure to meet completion, commissioning or production dates; capital overrun related to the completion of any construction phase including capital overrun associated with demobilization of construction workers and contractors; labour negotiations; unanticipated costs relating to the commencement of operations, ramp up and production sustainment; changes in government regulation (including regulations regarding prices, cost of consumables, royalties, duties, taxes, permitting and restrictions on production quotas or exportation of the Company’s products; and change in commodity input costs and quantities).

 

 

 

 

 

Sustaining capital expenditures of approximately $11,500 to $14,500 are expected to be required in 2020 to sustain current operational capacity (excluding capitalized waste stripping costs).

 

Management assumes that its current estimation of capital expenditures is accurate, as based on operational estimates produced and current experience with operations.

 

Capital and operating costs estimates made by management with respect to future projects, or current operations in production, or not yet in the production phase are estimates which are in turn based, among other things, on interpretation of geological data, feasibility studies, anticipated climactic conditions and other information.

Any or all of these can affect the accuracy of the estimates including unanticipated changes in grade and tonnage to be mined and processed; incorrect data on which engineering assumptions are made; unanticipated transportation costs; accuracy of equipment and construction cost estimates; difficulty or failure to meet scheduled construction completion dates, facility or equipment commissioning dates, or metal production dates; poor or unsatisfactory construction quality resulting in failure to meet completion, commissioning or production dates; increased expenditures required as a failure to meet completion, commissioning or production dates; capital overrun related to the completion of any construction phase including capital overrun associated with demobilization of construction workers and contractors; labour negotiations; unanticipated costs relating to the commencement of operations, ramp up and production sustainment; changes in government regulation (including regulations regarding prices, cost of consumables, royalties, duties, taxes, permitting and restrictions on production quotas or exportation of the Company’s products; and change in commodity input costs and quantities).

 

24

 

Forward-looking statements and forward looking information are based on the opinions and estimates of management as of the date such statements are made, and they are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking statements or forward looking information, including, but not limited to, unexpected events during operations; variations in ore grade; risks inherent in the mining industry; delay or failure to receive board approvals;  timing and availability of external financing on acceptable terms; risks relating to international operations; actual results of exploration activities; conclusions of economic valuations; changes in project parameters as plans continue to be refined; and fluctuating metal prices and currency exchange rates.

 

Although management of the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements or forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements and forward-looking information. The Company does not undertake to update any forward-looking statements or forward-looking information that are incorporated by reference herein, except in accordance with applicable securities laws.

 

Investors are advised that National Instrument 43-101 of the Canadian Securities Administrators (“NI 43-101”) requires that each category of mineral reserves and mineral resources be reported separately.  Mineral resources that are not mineral reserves do not have demonstrated economic viability.

 

Cautionary Note to U.S. Investors Concerning Estimates of Measured, Indicated or Inferred Resources

 

This MD&A uses the terms “measured”, “indicated” and “inferred” mineral resources. United States investors are advised that while such terms are recognized and required by Canadian regulations, the United States Securities and Exchange Commission does not recognize them. Inferred mineral resources have a great amount of uncertainty as to their existence, and as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or other economic studies. United States investors are cautioned not to assume that all or any part of measured or indicated mineral resources will ever be converted into mineral reserves. United States investors are also cautioned not to assume that all or any part of an inferred mineral resource exists or is economically or legally mineable.

 

25

Exhibit 99.17

 

GRAPHIC

 

TSX TRUST COMPANY

 

VIA ELECTRONIC TRANSMISSION

 

April 6, 2020

 

TO ALL APPLICABLE EXCHANGES AND COMMISSIONS:

 

RE:

LARGO RESOURCES LTD.

 

Confirmation of Notice of Record and Meeting Dates

 

We are pleased to confirm that Notice of Record and Meeting Dates was sent to The Canadian Depository for Securities.

 

We advise the following with respect to the upcoming Annual and Special Meeting of Security Holders for the subject issuer:

 

1

 

ISIN:

 

CA5171034047

 

 

 

 

 

 

 

CUSIP:

 

517103404

 

 

 

 

 

 

 

 

 

 

2

 

Date Fixed for the Meeting:

 

June 8, 2020

 

 

 

 

 

3

 

Record Date for Notice:

 

May 1, 2020

 

 

 

 

 

4

 

Record Date for Voting:

 

May 1, 2020

 

 

 

 

 

5

 

Beneficial Ownership Determination Date:

 

May 1, 2020

 

 

 

 

 

6

 

Classes or Series of Securities that entitle the holder to receive Notice of the Meeting:

 

COMMON

 

 

 

 

 

7

 

Classes or Series of Securities that entitle the holder to vote at the meeting:

 

COMMON

 

 

 

 

 

8

 

Business to be conducted at the meeting:

 

Annual and Special

 

 

 

 

 

9

 

Notice-and-Access:

 

 

 

 

Registered Shareholders:

 

NO

 

 

Beneficial Holders:

 

NO

 

 

Stratification Level:

 

Not Applicable

 

 

 

 

 

10

 

Reporting issuer is sending proxy-related materials directly to Non-Objecting Beneficial Owners:

 

YES

 

 

 

 

 

11

 

Issuer paying for delivery to Objecting Beneficial Owners:

 

YES

 

Yours truly,

TSX Trust Company

 

“    Lori Winchester  “

Senior Relationship Manager

Lori.Winchester@tmx.com

 

VANCOUVER

CALGARY

TORONTO

MONTRÉAL

650 West Georgia Street,

300-5th Avenue SW, 10th floor

301 - 100 Adelaide Street West

1800 - 1190, avenue des

Suite 2700

Calgary, AB T2P 3C4

Toronto ON M5H 4H1

Canadiens-de-Montréal, C. P. 37

Vancouver, BC V6B 4N9

 

 

Montréal (Québec) H3B 0G7

 

 

Toll Free 1-866-600-5869

 

T 604 689-3334

T 403 218-2800

T 416 361-0930

T 514 395-5964

 

Exhibit 99.18

 

GRAPHIC

 

PRESS RELEASE

April 13, 2020

 

Largo Resources Reports V2O5 Production of 2,831 Tonnes in Q1 2020

 

·             V2O5 production of 2,831 tonnes (6.2 million lbs(1)) in Q1 2020, an increase of 35% over Q1 2019

 

·             Global V2O5 recovery rate(2) of 79.9% in Q1 2020 compared to 80.0% in Q1 2019 and 77.3% in Q4 2019

 

·             Planned kiln upgrades and cooler maintenance in April 2020 postponed due to COVID-19 precautions; Enhanced chemical plant preventative maintenance to be performed

 

·             2020 production, sales and cost guidance maintained

 

TORONTO — Largo Resources Ltd. (“Largo” or the “Company”) (TSX: LGO) (OTCQX: LGORF) announces first quarter 2020 production results from its Maracás Menchen Mine with production of 2,831 tonnes of vanadium pentoxide (“V2O5”) produced at an average global recovery rate(2) of 79.9%.

 

Total production in Q1 2020 from the Maracás Menchen Mine was 2,831 tonnes of V2O5 representing an increase of 35% over Q1 2019. Production in January 2020 was 956 tonnes of V2O5, with 915 tonnes of V2O5 produced in February 2020 and 960 tonnes produced in March 2020. Production in January 2020 was impacted by shutdowns of the kiln and cooler to fix the refractory and for maintenance to correct instability in the kiln feed. Production in February and March 2020 was impacted by additional kiln shutdowns to fix hot spots in the refractory. The Company’s planned upgrades to the kiln and improvements in the cooler have been postponed until further notice as a result of precautionary measures such as limiting mine site personnel and contractors in light of the COVID-19 pandemic. The Company will instead be performing an enhanced preventative maintenance program in the chemical plant for approximately 15 days and, as a result, estimates that April 2020 production will be approximately 500 tonnes of V2O5.

 

In Q1 2020, 203,966 tonnes of ore with an effective V2O5 grade(3) of 1.61% were mined and the crushing unit was fed with 226,394 tonnes with an effective V2O5 grade(3) of 1.43%. The Company also produced 100,072 tonnes of concentrate ore with an average V2O5 grade(3) of 3.36% compared to 86,673 tonnes produced in Q1 2019 with a grade of 3.32%.

 

Global V2O5 recovery rates(2) averaged 79.9% in Q1 2020 which compares to 80.0% in Q1 2019. Global recoveries(2) in Q1 2020 increased 3% over Q4 2019 (77.3%) following improved recoveries in the crushing, milling, leaching and chemical plant areas but were partially offset by lower recoveries in the kiln.

 

A summary of Q1 2020 production results from the Maracás Menchen Mine is presented below:

 

Maracás Menchen Mine Production

 

Q1 2020

 

Q1 2019

 

 

 

 

 

 

 

Total Ore Mined (tonnes)

 

203,966

 

250,109

 

Ore Grade Mined - Effective Grade (%)(3)

 

1.61

 

1.29

 

 

 

 

 

 

 

Effective Grade of Ore Milled (%)(3)

 

1.59

 

1.51

 

Concentrate Produced (tonnes)

 

100,072

 

86,673

 

Grade of Concentrate (%)

 

3.36

 

3.32

 

Contained V2O5 (tonnes)

 

3,365

 

2,874

 

 

 

 

 

 

 

Crushing Recovery (%)

 

98.3

 

97.0

 

Milling Recovery (%)

 

98.4

 

96.8

 

Kiln Recovery (%)

 

88.3

 

89.2

 

Leaching Recovery (%)

 

96.6

 

97.7

 

Chemical Plant Recovery (%)

 

96.8

 

97.7

 

Global Recovery (%)(2)

 

79.9

 

80.0

 

 

 

 

 

 

 

V2O5 produced (Flake + Powder) (tonnes)

 

2,831

 

2,099

 

V2O5 produced (equivalent pounds)(1)

 

6,241,279

 

4,627,497

 

 

 

Paulo Misk, President and Chief Executive Officer for Largo, stated: “Production was impacted during the quarter as a result of kiln shutdowns caused by the formation of hot spots in the kiln refractory. We expect to complete the previously planned kiln upgrades and cooler improvements in the second half of 2020 but will continue to evaluate this timing as the evolving COVID-19 pandemic progresses. In the meantime, our operations team is working diligently to mitigate any potential future impacts to production.”

 

He continued: “We understand that these are uncertain times and we continue to do our part to help stop the spread of COVID-19. The Company has purchased approximately 6,000 COVID-19 test kits to donate to local communities and hospitals and has donated four ventilators in addition to PPE materials such as protective coveralls, safety boots, masks and safety glasses. Largo has also donated 4,500 food baskets to families in the State of Bahia to further help with impacts caused by the COVID-19 pandemic. Largo continues to take all necessary measures provided by health authorities to ensure the health and safety of its people and communities.”

 

He concluded: “To date, there has been no interruptions to our operations or with the shipment of material from the mine. We continue to maintain our production, sales and cost guidance for 2020 and the Company expects to be well positioned following the expiration of its offtake agreement on April 30, 2020. The Company’s expected forecast cash at April 30, 2020 is approximately US$123.0 million with an estimated revenue adjustment payable(4) due to Glencore of US$64.0 million for a net of US$59.0 million,(5). Vanadium prices in Europe bottomed in November 2019 to US$4.73/lb V2O5 and increased consistently by approximately 40% to US$6.75/lb V2O5 as of the end of February 2020. As a result of the increased uncertainties and potential disruptions mainly linked to the evolving challenges of the COVID-19 pandemic, prices softened by approximately 15% to US$5.50/lb V2O5 as of March 20, 2020. Vanadium prices have since increased approximately 4% to US$5.73/lb V2O5 as of April 10, 2020 largely due to a fear of supply constraints as a result of the government enforced lockdown of South Africa (approximately 8% of global vanadium supply) due to the COVID-19 pandemic. The overall global vanadium supply and demand impacts remain unknown at this time, but we continue to monitor the situation diligently and will provide updates as developments occur.”

 

Update Regarding COVID-19 Preventative Measures

 

The Company continues to monitor the rapidly evolving COVID-19 pandemic and has taken additional preventative measures at its mine site and corporate offices to mitigate protentional risks. To date, there continues to be no significant impact on our production or on our shipment of product out of Maracás. At this time, there has been no significant disruption to the Company’s supply chain for its operations and the level of critical consumables continues to be at normal levels. Additionally, no employee or contractor has tested positive for the virus and we believe that the risk to the Company’s operating team in Maracás remains relatively low. To date, the restrictions imposed by the government in Brazil have not impacted operations but the potential impact of future restrictions and other restrictions globally on our operations, sales efforts and logistics is unknown but could be significant. The Company has also implemented additional safety protocols, including travel restrictions,

 

 

health screenings and increased hygiene measures in an effort to minimize the spread of COVID-19. The Company continues to follow the recommendations provided by health authorities and all corporate office personnel have been instructed to work from home where possible. The Company has staffed critical functions at the mine site and has encouraged those in non-essential roles to work from home.

 

The Company’s 2020 guidance is still being presented on a “business as usual” basis.  Largo remains conscious of the rapidly expanding COVID-19 pandemic and the evolving measures being imposed by governments globally to reduce its spread and the impact that this may have on our operations and guidance for 2020. Although these restrictions have not, to date, had a material impact on our operations, the potential future impact of COVID-19 both in Brazil and globally could have a significant impact on our operations, sales efforts and logistics and the Company will continue to monitor the situation and will, if and when necessary, update its guidance accordingly.

 

About Largo Resources

 

Largo Resources is an industry preferred producer and supplier of vanadium. Largo’s VPURE™ and VPURE+™ products are sourced from one of the world’s highest-grade vanadium deposits at the Maracás Menchen Mine located in Brazil. The Company’s common shares are principally listed on the Toronto Stock Exchange under the symbol “LGO”. For more information on Largo and VPURE™, please visit www.largoresources.com and www.largoVPURE.com.

 

For further information, please contact:

 

Alex Guthrie
Manager, Investor Relations and Communications
aguthrie@largoresources.com
Tel: +1 416-861-9797

 

Neither the Toronto Stock Exchange (nor its regulatory service provider) accepts responsibility for the adequacy or accuracy of this press release.

 

Forward-looking Information:

 

This press release contains forward-looking information under Canadian securities legislation, some of which may be considered “financial outlook” for the purposes of application Canadian securities legislation (“forward-looking statements”). Forward-looking information in this press release includes, but is not limited to, statements with respect to the timing and amount of estimated future production and sales; costs of future activities and operations; the extent of capital and operating expenditures; and the extent and overall impact of the COVID-19 pandemic in Brazil and globally. Forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. All information contained in this news release, other than statements of current and historical fact, is forward looking information. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Largo to be materially different from those expressed or implied by such forward-looking statements, including but not limited to those risks described in the annual information form of Largo and in its public documents filed on SEDAR from time to time. Forward-looking statements are based on the opinions and estimates of management as of the date such statements are made. Although management of Largo has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements

 

 

will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Largo does not undertake to update any forward-looking statements, except in accordance with applicable securities laws. Readers should also review the risks and uncertainties sections of Largo’s annual and interim MD&As which also apply.

 

Non-GAAP(6) Measures

 

The Company uses certain non-GAAP financial performance measures in press release which are described in the following section.

 

Revenue Adjustment Payable

 

The Company’s press release refers to revenue adjustment payable, a non-GAAP performance measure used to provide investors with information about a key measure used by management as part of its monitoring of the financial liquidity of the Company.

 

This measure is considered to be one of the key components monitored relating to the Company’s projected financial liquidity and capital resources. This revenue adjustment payable does not have any standardized meaning prescribed by IFRS and differs from measures determined in accordance with IFRS. This measure is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance, financial liquidity or capital resources prepared in accordance with IFRS. This measure is not necessarily indicative of cash flow from operating activities or disclosed commitments as determined and presented under IFRS.

 

(1)  Conversion of tonnes to pounds, 1 tonne = 2,204.62 pounds or lbs.

(2)  Global recovery is the product of crushing recovery, milling recovery, kiln recovery, leaching recovery and chemical plant recovery.

(3)  Effective grade represents the percentage of magnetic material mined multiplied by the percentage of V2O5 in the magnetic concentrate.

(4)  The revenue adjustment payable and revenue adjustment per pound is on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this press release.

(5)  The Company has forecast its expected cash balance and the estimated revenue adjustment payable at April 30, 2020 (see non-GAAP section of this press release) and assumes a vanadium price of US$6.00 for April 2020 onwards, $/US$ foreign exchange rate of 1.40 and total cash costs consistent with the Company’s 2020 guidance (see press release dated March 20, 2020).

(6)  GAAP — Generally Accepted Accounting Principles.

 

Exhibit 99.19

 

GRAPHIC

 

PRESS RELEASE

April 22, 2020

 

Largo Resources to Release First Quarter 2020 Financial Results on May 12, 2020

 

·                  Shareholder conference call with Paulo Misk, President and CEO, Ernest Cleave, CFO and Paul Vollant, Director of Sales and Trading will be conducted at 10:00 a.m. EST on Wednesday, May 13, 2020.

 

TORONTO — Largo Resources Ltd. (“Largo” or the “Company”) (TSX: LGO) (OTCQX: LGORF) will release its first quarter 2020 financial results on Tuesday, May 12, 2020 after the close of market trading. Additionally, the Company will host a conference call to discuss its first quarter 2020 operating and financial results on Wednesday, May 13 at 10:00 a.m. EST.

 

Details of the conference call are listed below:

 

Date:

Friday, August 14, 2020

Time:

2:00 p.m. ET

Dial-in Number:

Local / International: +1 (416) 764-8688

 

North American Toll Free: (888) 390-0546

 

Brazil Toll Free: 08007621359

Conference ID:

80011471

Replay Number:

Local / International: + 1 (416) 764-8677

 

North American Toll Free: (888) 390-0541

 

Replay Passcode: 011471#

Website:

To view press releases or any additional financial information, please visit the Investor Relations section of the Largo Resources website at: www.largoresources.com/investors

 

About Largo Resources

 

Largo Resources is an industry preferred producer and supplier of vanadium for the global steel and high purity markets. Largo’s VPURE™ and VPURE+™ products are sourced from one of the world’s highest-grade vanadium deposits at the Maracás Menchen Mine located in Brazil. The Company’s common shares are principally listed on the Toronto Stock Exchange under the symbol “LGO”. For more information on Largo and VPURE™, please visit www.largoresources.com and www.largoVPURE.com.

 

For further information, please contact:

 

Alex Guthrie
Manager, Investor Relations and Communications
info@largoresources.com
Tel: +1 416-861-9797

 

Exhibit 99.20

 

GRAPHIC

 

PRESS RELEASE

May 1, 2020

 

Largo Resources Announces Expiration of its Vanadium Off-take Agreement and Commences Full Commercial Control of its Own Vanadium Production

 

·                  Strategic sales and marketing transition proven successful: Over 85% committed on guided annual sales for 2020

 

·                  Sales and trading team fully operational out of its two commercial offices in Dublin, Ireland and Washington DC, USA

 

·                  The Company announced the launch of VPURE™ and VPURE+™, newly developed brands for the Company’s vanadium products in January 2020

 

TORONTO — Largo Resources Ltd. (“Largo” or the “Company”) (TSX: LGO) (OTCQX: LGORF) announces that in accordance with its notice given on August 20, 2019, the Company’s off-take agreement with Glencore International AG has expired effective April 30, 2020.

 

Paulo Misk, President and Chief Executive Officer for Largo, stated: “Largo continues to remain one of the lowest-cost vanadium producers in the world with an established industry reputation for its high-quality vanadium products. Following the expiration of its off-take agreement, the Company’s sales and trading team is fully dedicated to the promotion and sales of Largo’s products. We have assembled a very strong commercial team at Largo who have committed approximately 85% of the Company’s annual guided sales for 2020. We expect the balance of production will be sold in the spot market and be used to build safety stocks in strategic regional hubs.”

 

He continued: “The Maracás Menchen Mine has a proven track record of premium product quality and operational stability, which allows the Company to provide its customers with a reliable source of vanadium pentoxide for the global steel and high purity markets. We believe this transition will be very beneficial economically and strategically for Largo and marks a transformative moment in the Company’s history. We look forward to maximizing value for all of our shareholders as the industry preferred producer and supplier of vanadium.”

 

He concluded: “We would like to thank Glencore for its support over the past six years. Their off-take agreement was helpful in obtaining debt funding for the project construction and allowed Largo Resources to evolve from a highly leveraged start-up Company to one of the world’s largest and most competitive producers of vanadium with a strong financial position. Our Company today becomes an even more important player in the global vanadium industry due to its commercial independence.”

 

About Largo Resources

 

Largo Resources is an industry preferred producer and supplier of vanadium. Largo’s VPURE™ and VPURE+™ products are sourced from one of the world’s highest-grade vanadium deposits at the Maracás Menchen Mine located in Brazil. The Company’s common shares are principally listed on the Toronto Stock Exchange under the symbol “LGO”. For more information on Largo and VPURE™, please visit www.largoresources.com and www.largoVPURE.com.

 

 

For further information, please contact:

 

Alex Guthrie
Manager, Investor Relations and Communications
info@largoresources.com
Tel: +1 416-861-9797

 

Neither the Toronto Stock Exchange (nor its regulatory service provider) accepts responsibility for the adequacy or accuracy of this press release.

 

Forward Looking Information

 

This press release contains forward-looking information under Canadian securities legislation, some of which may be considered “financial outlook” for the purposes of application Canadian securities legislation (“forward-looking statements”). Forward-looking information in this press release includes, but is not limited to, statements with respect to the timing and amount of estimated future production and sales; costs of future activities and operations; the extent of capital and operating expenditures; and the extent and overall impact of the COVID-19 pandemic in Brazil and globally. Forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. All information contained in this news release, other than statements of current and historical fact, is forward looking information. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Largo to be materially different from those expressed or implied by such forward-looking statements, including but not limited to those risks described in the annual information form of Largo and in its public documents filed on SEDAR from time to time. Forward-looking statements are based on the opinions and estimates of management as of the date such statements are made. Although management of Largo has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Largo does not undertake to update any forward-looking statements, except in accordance with applicable securities laws. Readers should also review the risks and uncertainties sections of Largo’s annual and interim MD&As which also apply.

 

Exhibit 99.21

 

GRAPHIC

 

NOTICE AND MANAGEMENT INFORMATION CIRCULAR OF
AN ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 8, 2020

 

Dated May 1, 2020

 

 

LARGO RESOURCES LTD.

 

NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS

 

NOTICE IS HEREBY GIVEN that an annual and special meeting (the “Meeting”) of the holders of common shares (“Shares”) of Largo Resources Ltd. (“Largo”) will be held by way of live webcast on June 8, 2020 at 11:00 a.m. (Toronto time), for the following purposes:

 

1.                          to receive Largo’s audited consolidated financial statements for the years ended December 31, 2019 and 2018 and the auditor’s report thereon;

 

2.                          to elect the directors of Largo;

 

3.                          to appoint PricewaterhouseCoopers LLP as Largo’s auditors, to hold office until the next annual meeting of shareholders, and to authorize the directors to fix their remuneration;

 

4.                          to authorize and approve the Company’s Share Compensation Plan, including amendments thereto, and the unallocated entitlements issuable thereunder; and

 

5.                         to transact such further or other business as may properly come before the Meeting or any postponement(s) or adjournment(s) thereof.

 

The specific details of the matters to be considered at the Meeting are set forth in the accompanying management information circular.

 

Due to restrictions relating the Global COVID-19 pandemic, and to mitigate risks to the health and safety of our communities, shareholders, employees and other stakeholders, Largo is holding the Meeting as a completely virtual meeting, which will be conducted via live webcast, where all shareholders regardless of geographic location and equity ownership will have an equal opportunity to participate at the Meeting and engage with Largo as well as other shareholders. Shareholders will not be able to attend the Meeting in person.

 

Registered shareholders (being shareholders who hold their Shares directly, registered in their own names) and duly appointed proxyholders will be able to attend, participate and vote at the Meeting online at https://web.lumiagm.com/233009732. Non-registered shareholders (being shareholders who hold their Shares through a broker, investment dealer, bank, trust company, custodian, nominee or other intermediary) who have not duly appointed themselves as proxyholder will be able attend the Meeting as guests, however they will not be able to vote at the Meeting.

 

As a shareholder of Largo, it is very important that you read the accompanying management information circular dated May 1, 2020 (the “Circular”) and other Meeting materials carefully. They contain important information with respect to voting your Shares and attending and participating at the Meeting.

 

A shareholder who wishes to appoint a person other than the management nominees identified on the form of proxy or voting instruction form, to represent him, her or it at the Meeting may do so by inserting such person’s name in the blank space provided in the form of proxy or voting instruction form and following the instructions for submitting such form of proxy or voting instruction form. This MUST be completed prior to registering such proxyholder, which is an additional step to be completed once you have submitted your form of proxy or voting instruction form. If you wish that a person

 

 

other than the management nominees identified on the form of proxy or voting instruction form attend and participate at the Meeting as your proxy and vote your Shares, including if you are a non-registered shareholder and wish to appoint yourself as proxyholder to attend, participate and vote at the Meeting, you MUST register such proxyholder after having submitted your form of proxy or voting instruction form identifying such proxyholder by 11:00 a.m. (Toronto time) on June 4, 2020. Failure to register the proxyholder will result in the proxyholder not receiving a Username to participate in the Meeting. Without a Username, proxyholders will not be able to attend, participate or vote at the Meeting. In order to register a proxyholder, whether yourself or a third party, shareholders MUST email TSX Trust Company (“TSX Trust”) at tmxeinvestorservices@tmx.com with their proxyholder’s contact information, so that TSX Trust may provide the proxyholder with a Username via email.

 

If you are a registered shareholder and are unable to attend the Meeting online please date and execute the accompanying form of proxy and return it in the envelope provided to TSX Trust, Largo’s transfer agent, at 100 Adelaide Street W., Ste. 301, Toronto, ON, M5H 4H1 by no later than 11:00 a.m. (Toronto time) on June 4, 2020 or 48 hours (excluding Saturdays, Sundays and holidays) before any postponement or adjournment of the Meeting.

 

If you are not a registered shareholder and receive these materials through your broker or through another intermediary, please complete and return the form of proxy in accordance with the instructions provided to you by your broker or by the other intermediary.

 

Largo’s directors have fixed May 1, 2020 as the record date. Holders of Shares at the close of business on May 1, 2020 are entitled to receive notice of and to vote at the Meeting or any postponement(s) or adjournment(s) thereof.

 

DATED at Toronto, Ontario this 1st day of May, 2020.

 

By Order of the Board of Directors

 

(Signed) “Paulo Misk”

 

Director and Chief Executive Officer

 

 

 

TABLE OF CONTENTS

 

GENERAL PROXY INFORMATION

3

VOTING INFORMATION

4

Voting Matters

4

Who Can Vote

4

Voting Your Common Shares at the meeting

4

Voting Your Common Shares by Proxy

6

Voting Shares and Principal Holders

8

MATTERS TO BE ACTED UPON AT THE MEETING

8

1. Financial Statements

8

2. Election of Directors

9

3. Appointment of Auditors

13

4. Share Compensation Plan

14

STATEMENT OF CORPORATE GOVERNANCE PRACTICES

15

Board of Directors

15

Committees of the Board

16

Position Descriptions

18

Orientation and Continuing Education

19

Ethical Business Conduct

19

Nomination of Directors

21

Compensation

21

Succession Planning

22

Assessments

22

Director Term Limits and Other Mechanisms of Board Renewal

23

Policies Regarding the Representation of Women

23

STATEMENT OF EXECUTIVE COMPENSATION

23

EQUITY COMPENSATION PLAN INFORMATION

34

INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON

41

INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS

41

INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS

41

WHERE YOU CAN FIND ADDITIONAL INFORMATION

41

DIRECTORS’ APPROVAL

42

SCHEDULE A ORDINARY RESOLUTION

A-21

SCHEDULE B BOARD MANDATE

B-21

SCHEDULE C AMENDED SHARE COMPENSATION PLAN

C-21

 

 

MANAGEMENT INFORMATION CIRCULAR

 

This management information circular (“Circular”) is furnished in connection with the solicitation of proxies by and on behalf of the management of Largo Resources Ltd. for use at the annual and special meeting of shareholders (the “Meeting”) to be held by way of live webcast on June 8, 2020 at 11:00 a.m. (Toronto time), or at any postponement(s) or adjournment(s) thereof. See “Voting Information - Voting Your Common Shares at the Meeting — Attending and Participating at the Meeting”.

 

The Meeting has been called for the purposes set forth in the Notice of Annual and Special Meeting of Shareholders (the “Notice of Meeting”) that accompanies this Circular. No director of the Company has informed management of the Company that he or she intends to oppose any action intended to be taken by management of the Company

 

References in this Circular to “we”, “us”, “our” and similar terms, as well as references to “Largo”, or the “Company”, refer to Largo Resources Ltd. and references to the “Board” refer to our board of directors.

 

No person has been authorized to give any information or to make any representation in connection with any other matters to be considered at the Meeting other than those contained in this Circular and, if given or made, any such information or representation must not be relied upon as having been authorized.

 

Forward-Looking Information

 

Certain statements in this Circular constitute “forward-looking information” and “forward-looking statements” within the meaning of applicable Canadian and United States securities laws (together, “forward-looking information”). The words “scheduled”, “may”, “will”, “would”, “should”, “could”, “expects”, “plans”, “intends”, “trends”, “indications”, “anticipates”, “believes”, “estimates”, “predicts”, “likely” or “potential” or the negative or other variations of these words or other comparable words or phrases, are intended to identify forward-looking information.

 

Forward-looking information is based on estimates and assumptions made by the Company in light of its experience and perception of historical trends, current conditions and expected future developments, as well as other factors that the Company believes are appropriate and reasonable in the circumstances, but there can be no assurance that such estimates and assumptions will prove to be correct or that the Company’s business guidance, objectives, plans and strategic priorities will be achieved.

 

Many factors could cause the Company’s actual results or affairs to differ materially from those expressed or implied by forward-looking information, including, without limitation, the factors discussed in the “Risk Factors” section of our Annual Information Form. Although these factors are not intended to represent a complete list of the factors that could affect the Company, they should be considered carefully. The forward-looking information contained in this Circular are made as of the date of this Circular, and the Company has no intention and undertakes no obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by applicable securities regulations. The forward-looking information contained in this Circular are expressly qualified by this cautionary statement. We caution investors not to rely on forward-looking information contained in this Circular when making an investment decision in our securities. You are encouraged to read our filings with Canadian securities regulatory authorities available at www.sedar.com for a discussion of these and other risks and uncertainties. Please also refer to the section entitled “Cautionary Note Regarding Forward-Looking Information” in the Company’s Annual Information Form for additional details with respect to forward-looking statements.

 

Date of Information and Currency Presentation

 

Unless otherwise indicated, the information in this Circular is given as at May 1, 2020.

 

This Circular contains references to Canadian dollars, United States, Brazilian reals and to the European Euro. All dollar amounts referenced herein, unless otherwise indicated, are expressed in Canadian dollars “$”. United States dollars may be referred to as “United States dollars” or “US$”. Brazilian reals may be referred to as “Brazilian reals” or “R$”, and the

 

2020 MANAGEMENT INFORMATION CIRCULAR

 

2

 

European Euro may be referred to as “Euro” or “€”. Certain totals, subtotals and percentages throughout this Circular may not reconcile due to rounding.

 

The following tables set out the average annual exchange rates according to information published by the Bank of Canada and the resulting currency conversion if one US$, one Brazilian real and one € were exchanged for the equivalent in Canadian dollar(s).

 

 

 

Year Ended December 31

 

One US Dollar

 

2019

 

2018

 

Closing in Cdn Dollar(s)

 

$

1.3269

 

$

1.2957

 

 

 

 

Year Ended December 31

 

One Brazilian Real

 

2019

 

2018

 

Closing in Cdn Dollar(s)

 

$

0.3371

 

$

0.3566

 

 

 

 

Year Ended December 31

 

One Euro Dollar

 

2019

 

2018

 

Closing in Cdn Dollar(s)

 

$

1.4856

 

$

1.5302

 

 

Based on information published by the Bank of Canada, (i) the value of one US$, if exchanged for one Canadian dollar, would have been $1.3269 for the month of December of 2019, (ii) the value of one Brazilian real, if exchanged for one Canadian dollar, would have been $0.3371 for the month of December of 2019, and (iii) the value of one Euro dollar, if exchanged for one Canadian dollar, would have been $1.4856 for the month of December of 2019.

 

On May 1, 2020, the indicative exchange rate for Canadian dollars in terms of the United States dollar, as quoted by the Bank of Canada, was US$1.00 = C$1.4066, the exchange rate into R$, was 1 real = C$0.2563, and the exchange rate into €, was €1 = C$1.5453.

 

All information in this Circular is given as of December 31, 2019, unless otherwise indicated. The Company’s fiscal year end is December 31.

 

GENERAL PROXY INFORMATION

 

This Circular provides the information you need in order to vote at the Meeting.

 

·                       If you are a registered holder of our common shares (each, a “Common Share”), a form of proxy is enclosed that you can use to vote at the Meeting or you may attend, participate and vote at the Meeting online at https://web.lumiagm.com/233009732.

 

·           If you are a beneficial holder, meaning your Common Shares are held through your broker or through another intermediary, you may receive either a form of proxy or a voting instruction form and should follow the instructions provided to you by your broker or by the other intermediary.

 

See “Voting Your Common Shares By Proxy — Appointing a Proxyholder”, and “Attending and Participating at the Meeting” below under “Voting Information”.

 

These materials are being sent to both registered and beneficial owners of Common Shares. If you are a beneficial holder, and we or our agent have sent these materials directly to you, your name, address and information about your share holdings have been obtained in accordance with applicable securities regulatory requirements from the broker or other intermediary holding the shares on your behalf. By choosing to send these materials to you directly, we (and not the intermediary holding on your behalf) have assumed responsibility for (i) delivering these materials to you, and (ii) providing you with a form of proxy so you can vote your Common Shares at the Meeting. See “Voting Information — Voting Your Common Shares at the Meeting”.

 

3

 

VOTING INFORMATION

 

The solicitation of proxies will be primarily by mail, but proxies may also be solicited in person, by telephone or other form of correspondence. The cost of preparing and mailing this Circular and other materials relating to the Meeting and the cost of soliciting proxies has been or will be borne by the Company.

 

All shareholders are advised to carefully read the voting instructions below that are applicable to them.

 

VIRTUAL ONLY MEETING

 

Due to restrictions relating the Global COVID-19 pandemic, and to mitigate risks to the health and safety of our communities, shareholders, employees and other stakeholders, Largo is holding the Meeting as a completely virtual meeting, which will be conducted via live webcast, where all shareholders regardless of geographic location and equity ownership will have an equal opportunity to participate at the Meeting and engage with Largo as well as other shareholders. Shareholders will not be able to attend the Meeting in person.

 

VOTING MATTERS

 

At the Meeting, shareholders are voting on:

 

·           the election of directors;

 

·           the appointment of Largo’s auditors, to hold office until the next annual meeting of shareholders, and to authorize the directors to fix their remuneration; and

 

·           the approval of the Company’s Share Compensation Plan, including amendments thereto, and the unallocated entitlements issuable thereunder.

 

WHO CAN VOTE

 

The record date for the Meeting is May 1, 2020 (the “Record Date”).

 

Our transfer agent has prepared a list, as of the close of business on the Record Date, of the registered holders of Common Shares. A holder of Common Shares whose name appears on such list is entitled to vote the Common Shares on such list at the Meeting online at https://web.lumiagm.com/233009732, or any postponement or adjournment thereof.  No person becoming a shareholder after the Record Date shall be entitled to receive notice of, or to vote at, the Meeting or any postponement or adjournment thereof

 

Each Common Share entitles the holder to one vote on each item of business identified in the Notice of Meeting.

 

VOTING YOUR COMMON SHARES AT THE MEETING

 

Registered Shareholders

 

You are a registered shareholder if your Common Shares are registered directly in your name.

 

If you were a registered shareholder on the Record Date, you may attend, participate and vote at the Meeting online at https://web.lumiagm.com/233009732 or give another person authority to represent you and vote your Common Shares at the Meeting online, as described below under the heading “Voting Your Common Shares by Proxy”.

 

Non-registered shareholders (being shareholders who hold their Shares through a broker, investment dealer, bank, trust company, custodian, nominee or other intermediary) who have not duly appointed themselves as proxyholder will be able attend the Meeting as guests, however they will not be able to vote at the Meeting. If you are a non-registered shareholder and wish to vote at the Meeting, you have to appoint yourself as proxyholder, by inserting your own name in the space provided on the voting instruction form sent to you and must follow all of the applicable

 

4

 

instructions provided by your intermediary. See “Voting Your Common Shares By Proxy — Appointing a Proxyholder”, and “Attending and Participating at the Meeting” below.

 

Beneficial Shareholders

 

It is possible that your Common Shares may be registered in the name of an intermediary, which is usually a trust company, securities broker or other financial institution. If your Common Shares are registered in the name of an intermediary, you are a beneficial shareholder. Your intermediary is entitled to vote the Common Shares held by it and beneficially owned by you on the Record Date. However, it must first seek your instructions as to how to vote your Common Shares or otherwise make arrangements so that you may vote your Common Shares directly. An intermediary is not entitled to vote the Common Shares held by it without written instructions from the beneficial owner. You may vote your Common Shares through your intermediary, or in person at the Meeting online at https://web.lumiagm.com/233009732 by taking the appropriate steps, which are the same for non-objecting beneficial owners (“NOBOs”) and objecting beneficial owners (“OBOs”) of Common Shares. You are an OBO if you have not allowed your intermediary to disclose your ownership information to us. You are a NOBO if you have provided instructions to your intermediary to disclose your ownership information to us.

 

Non-registered beneficial shareholders who have not duly appointed themselves as proxyholder will be able attend the Meeting as guests, however they will not be able to vote at the Meeting.

 

NOBOs and OBOs should carefully review the instructions provided to them by their intermediary regarding how to provide voting instructions or how to obtain a proxy with respect to their Common Shares. Such shareholders may also wish to contact their intermediary directly in order to obtain instructions regarding how to vote Common Shares that they beneficially own.

 

Please note that if you are a NOBO or an OBO and you wish to attend the Meeting, you will not be recognized at the Meeting for the purpose of voting Common Shares registered in the name of an intermediary unless you appoint yourself as a proxyholder, you will only be permitted to attend the Meeting as a guest. In order to do this, you should follow the instructions on the voting instruction form (“VIF”) and, in so doing, specify your own name as the person whom you are appointing as proxy for the purposes of voting your Common Shares. You are reminded that any voting instructions should be communicated to your intermediary in accordance with the procedures set out in the VIF well in advance of the deadline for the receipt of proxies.

 

Attending and Participating at the Meeting

 

The Company is holding the Meeting as a completely virtual meeting, which will be conducted via live webcast. Shareholders will not be able to attend the Meeting in person. In order to attend, participate or vote at the Meeting (including for voting and asking questions at the Meeting), shareholders MUST have a valid Username.

 

Registered shareholders and duly appointed proxyholders will be able to attend, participate and vote at the Meeting online at https://web.lumiagm.com/233009732. Such persons may then enter the Meeting by clicking “I have a login” and entering a Username and Password before the start of the Meeting:

 

·                  Registered shareholders: The control number located on the form of proxy or in the email notification you received is the Username. The Password to the Meeting is “largo2020” (case sensitive).

 

If as a registered shareholder you are using your control number to login to the Meeting and you accept the terms and conditions, you will be revoking any and all previously submitted proxies for the Meeting and will be provided the opportunity to vote by online ballot on the matters put forth at the Meeting. If you do not wish to revoke a previously submitted proxy, do not accept the terms and conditions, in which case you may enter the Meeting as a guest.

 

·                  Duly appointed proxyholders: The person you appoint as proxyholder MUST contact TSX Trust Company at TMXEInvestorServices@tmx.com to request a control number to be represented or voted at the Meeting.  TSX

 

5

 

Trust Company will also provide the proxyholder with a Username by e-mail after the voting deadline has passed. The Password to the Meeting is “largo2020” (case sensitive). Without the control number, proxyholders will not be able to participate at the meeting.

 

Only registered shareholders and duly appointed proxyholders will be entitled to participate and vote at the Meeting. Non-registered shareholders who have not duly appointed themselves as proxyholder will be able attend the Meeting as guests, however they will not be able to participate or vote at the Meeting. Non-registered shareholders that wish to attend the Meeting as a guest should select “I am a guest” and complete the online form.

 

Shareholders who wish to appoint a third party proxyholder to represent them at the Meeting (including non-registered shareholders who wish to appoint themselves as proxyholder to attend, participate or vote at the Meeting) MUST submit their duly completed proxy or voting instruction form AND register the proxyholder. See “Appointing a Proxyholder”  below.

 

If you attend the Meeting online, it is important that you are connected to the internet at all times during the Meeting in order to vote when balloting commences. It is your responsibility to ensure connectivity for the duration of the Meeting. You should allow ample time to check into the Meeting online and complete the related procedure.

 

VOTING YOUR COMMON SHARES BY PROXY

 

You may vote before the Meeting by completing the enclosed form of proxy or VIF. A proxy or VIF must be properly completed in writing, in accordance with the instructions provided therein, and must be executed by you or by your attorney authorized in writing.

 

Deadline for Proxies

 

Any proxy to be used at the Meeting must be received by Largo’s transfer agent, TSX Trust Company (“TSX Trust”), prior to 11:00 a.m. (Toronto time) on June 4, 2020, or 48 hours (excluding Saturdays, Sundays and holidays) before any postponement or adjournment of the Meeting. Late proxies may be accepted or rejected by the chair of the Meeting in his or her discretion, and the chair of the meeting is under no obligation to accept or reject any particular late proxy.

 

Registered shareholders may provide their voting instructions by any of the following means:

 

·           by mail, to TSX Trust Company, at 100 Adelaide Street W., Ste. 301, Toronto, ON, M5H 4H1 (a pre-addressed return envelope is enclosed);

 

·           by hand or by courier to TSX Trust Company, at 100 Adelaide Street W., Ste. 301, Toronto, ON, M5H 4H1;

 

·           by fax to +1 416-595-9593; or

 

·           by internet at www.voteproxyonline.com, using your 12 digit control number which can be found on your proxy.

 

Beneficial shareholders may provide their voting instructions by mail, by telephone or online by following the instructions in the enclosed VIF.

 

Your Proxy Vote

 

On the form of proxy, you can indicate how you want to vote your Common Shares, or you can let your proxyholder decide for you.

 

All Common Shares represented by properly completed proxies received by Largo’s transfer agent, TSX Trust, no later than 11:00 a.m. (Toronto time) on June 4, 2020 or 48 hours (excluding Saturdays, Sundays and holidays) before any postponement or adjournment of the Meeting will be voted or withheld from voting, in accordance with your instructions as specified in the proxy, on any ballot votes that take place at the Meeting. Late proxies may be accepted or rejected by the chair of the Meeting in his or her discretion, and the chair of the meeting is under no obligation to accept or reject any particular late proxy.

 

6

 

If you give directions on how to vote your Common Shares on your form of proxy, your proxyholder must vote your Common Shares according to your instructions. If you have not specified how to vote on a particular matter on your form of proxy, your proxyholder can vote your Common Shares as he or she sees fit. If neither you nor your proxyholder gives specific instructions, your Common Shares will be voted as follows:

 

·           FOR the election of each of the six nominees as directors;

 

·           FOR the appointment of PricewaterhouseCoopers LLP as Largo’s auditors, to hold office until the next annual meeting of shareholders, and to authorize the directors to fix their remuneration; and

 

·           FOR the approval of the Company’s Share Compensation Plan, including amendments thereto, and the unallocated entitlements issuable thereunder.

 

Appointing a Proxyholder

 

A proxyholder is the person you appoint to act on your behalf at the Meeting (including any postponement or adjournment of the Meeting) and to vote your Common Shares. You may choose anyone to be your proxyholder, including someone who is not a shareholder of Largo. Simply fill in the proxyholder’s name in the blank space provided on the enclosed form of proxy. If you leave the space in the form of proxy blank, the persons designated in the form, who are our Chief Executive Officer and Chief Financial Officer, are appointed to act as your proxyholder.

 

The following applies to shareholders who wish to appoint a person (a “third party proxyholder”) other than the management nominees set forth in the form of proxy or voting instruction form as proxyholder, including non-registered shareholders who wish to appoint themselves as proxyholder to attend, participate or vote at the Meeting.

 

Shareholders who wish to appoint a third party proxyholder to attend, participate or vote at the Meeting as their proxy and vote their Common Shares MUST submit their proxy or voting instruction form (as applicable) appointing such third party proxyholder AND register the third party proxyholder, as described below. Registering your proxyholder is an additional step to be completed AFTER you have submitted your proxy or voting instruction form. Failure to register the proxyholder will result in the proxyholder not receiving a Username to attend, participate or vote at the Meeting.

 

·                  STEP 1: Submit your proxy or voting instruction form: To appoint a third party proxyholder, insert such person’s name in the blank space provided in the form of proxy or voting instruction form (if permitted) and follow the instructions for submitting such form of proxy or voting instruction form. This must be completed prior to registering such proxyholder, which is an additional step to be completed once you have submitted your form of proxy or voting instruction form.

 

·                  STEP 2: Register your proxyholder: The person you appoint as proxyholder MUST contact TSX Trust at TMXEInvestorServices@tmx.com to request a control number to be represented or voted at the Meeting.  TSX Trust will also provide the proxyholder with a Username by e-mail after the voting deadline has passed. The Password to the Meeting is “largo2020” (case sensitive). Without the control number, proxyholders will not be able to participate at the meeting. It is the responsibility of the shareholder to advise their proxy (the person they appoint) to contact TSX Trust to request a control number.

 

If you are a non-registered shareholder and wish to attend, participate and vote at the Meeting, you have to insert your own name in the space provided on the voting instruction form sent to you by your intermediary, follow all of the applicable instructions provided by your intermediary AND register yourself as your proxyholder, as described above. By doing so, you are instructing your intermediary to appoint you as proxyholder. It is important that you comply with the signature and return instructions provided by your intermediary. Please also see further instructions below under the heading “Voting Your Common Shares at the Meeting — Attending and Participating at the Meeting”.

 

If you are a non-registered shareholder and you have not appointed yourself as proxy, and wish to attend the Meeting as a guest only, you should select “I am a guest” and complete the online form in order to attend the Meeting.

 

7

 

Revoking Your Proxy

 

If you submit a form of proxy, you may revoke it at any time before it is used by doing any one of the following:

 

·           you may send another form of proxy with a later date to our transfer agent, TSX Trust, but it must reach the transfer agent no later than 11:00 a.m. (Toronto time) on June 4, 2020 or 48 hours (excluding Saturdays, Sundays and holidays) before any postponement or adjournment of the Meeting;

 

·           you may deliver a signed written statement, stating that you want to revoke your form of proxy, to our Chief Financial Officer no later than the last business day preceding the Meeting or any postponement or adjournment of the Meeting, at 55 University Avenue, Suite 1105, Toronto, ON M5J 2H7 or by facsimile at 416 862-7661; or

 

·           you may revoke your form of proxy in any other manner permitted by law.

 

If as a registered shareholder you are using your control number to login to the Meeting and you accept the terms and conditions, you will be revoking any and all previously submitted proxies and will be provided the opportunity to vote by online ballot on the matters put forth at the Meeting. If you do not wish to revoke a previously submitted proxy, do not accept the terms and conditions, in which case you may enter the Meeting as a guest.

 

If you are a non-registered shareholder and wish to revoke previously provided voting instructions, you should follow carefully the instructions provided by your intermediary.

 

Late proxies may be accepted or rejected by the chair of the Meeting in his or her discretion, and the chair of the meeting is under no obligation to accept or reject any particular late proxy.

 

ADDITIONAL MATTERS PRESENTED AT THE MEETING

 

The enclosed form of proxy or VIF confers discretionary authority upon the persons named as proxyholders therein with respect to any amendments or variations to the matters identified in the Notice of Meeting and with respect to further or other matters that may properly come before the Meeting or any postponement or adjournment thereof. Our management is not aware of any matters to be considered at the Meeting other than the matters described in the Notice of Meeting, or any amendments or variations to the matters described in such notice.

 

If you sign and return the form of proxy and do not appoint a proxyholder by filling in a name, the Largo representatives named as proxies will vote in their best judgment.

 

If you sign and return the voting instruction form, your Common Shares will be voted in accordance with your instructions and, with respect to any matter presented at the Meeting, or at any postponement or adjournment thereof, in addition, or as an amendment or variation to the matters described in the Notice of Meeting, in accordance with the discretionary authority provided therein.

 

VOTING SHARES AND PRINCIPAL HOLDERS

 

The Common Shares are the only shares which entitle shareholders to vote at the Meeting. The holders of Common Shares are entitled to one vote per share. The attendance of at least two people holding or representing by proxy at least 10% of the total number of votes attached to the issued Common Shares entitled to vote at the Meeting is necessary for a quorum at the Meeting.

 

As at May 1, 2020, 562,975,760 Common Shares were issued and outstanding.

 

To the knowledge of the directors and executive officers of Largo, based upon filings made with Canadian securities regulators on or before the date of this Circular, other than as described below, no other persons beneficially own, or control or direct, directly or indirectly, voting securities carrying 10% or more of the voting rights attached to any class of our voting securities.

 

8

 

Mr. Alberto Arias, a director of Largo, is the sole director of each of the general partners of Arias Resource Capital Fund L.P., Arias Resource Capital Fund II L.P. and Arias Resource Capital Fund II (Mexico) L.P. which, as at the date of this Circular, in aggregate beneficially own 246,779,656 of our Common Shares representing approximately 43.83% of our outstanding Common Shares. Our remaining directors and executive officers, as a group, beneficially own or control or direct, directly or indirectly, less than 1% of our outstanding Common Shares.

 

MATTERS TO BE ACTED UPON AT THE MEETING

 

1.                   FINANCIAL STATEMENTS

 

Our audited consolidated financial statements for the years ended December 31, 2019 and 2018 and the auditor’s report thereon will be presented at the Meeting.

 

2.                   ELECTION OF DIRECTORS

 

Our Board is currently composed of six directors. The governance committee of the Board (the “Governance Committee”) has recommended, and the Board has determined to nominate, each of the six persons listed below for election as a director at the Meeting. All of the nominees are current members of our Board (see “Nominees for Election as Directors” below). The Board recommends that shareholders vote FOR the election of each of the six nominees as directors.

 

Each director elected at the Meeting shall hold office until the close of the next annual meeting of shareholders or until a successor has been elected or appointed in accordance with our articles and by-laws.

 

Director Nominees of the ARC Funds

 

Pursuant to an amended and restated Governance Agreement dated March, 2012 and an Amended and Restated Director Nomination Agreement dated March, 2016, entered into among the Company, certain initial investors, and the general partner of each of Arias Resource Capital Fund L.P., Arias Resource Capital Fund II L.P. and Arias Resource Capital Fund II (Mexico) L.P. (collectively, the “ARC Funds”), of which our director, Alberto Arias, is the sole director of their respective General Partners, the ARC Funds currently possess the right to nominate three individuals to our Board. The nominee directors of the ARC Funds are Alberto Arias, Daniel Tellechea and Jonathan Lee. For additional information in respect of the ARC Funds’ nomination rights see the Company’s Annual Information Form for the year ended December 31, 2019 (“Annual Information Form”) filed under the Company’s profile on SEDAR at www.sedar.com.

 

Majority Voting Policy

 

The Board has adopted a policy on majority voting. If, with respect to any particular nominee, such nominee is not elected by a majority (50% + 1 vote) of the votes cast with respect to his or her election, then for purposes of the policy the nominee shall be considered not to have received the support of the shareholders, even though duly elected as a matter of corporate law. A person elected as a director who is considered under this test not to have received the support of the shareholders must immediately submit to the Board his or her resignation, to take effect upon acceptance by the Board. The Board will refer the resignation to the Governance Committee for consideration. A nominee who tenders a resignation pursuant to the policy will not participate in any meeting of the Board or the Governance Committee at which the resignation is considered. The Board will promptly accept the resignation unless the Governance Committee determines that there are exceptional circumstances (for example, relating to the composition of the Board or the voting results) that should delay the acceptance of the resignation or justify rejecting it. In any event, it is expected that the resignation will be accepted (or in rare cases rejected) and the Board will promptly announce its decision in a press release within 90 days of the meeting, including reasons for rejecting the resignation, if applicable. This policy does not apply to a contested meeting of shareholders.

 

On a vote by a show of hands, each of the following incumbent nominees listed below was elected as a director of Largo at our annual meeting of shareholders held on June 27, 2019 in Toronto, Ontario (the “2019 meeting”). We received proxies representing 326,869,827 Common Shares in connection with the 2019 meeting. Based on these proxies, each director received the following favourable votes cast by proxy:

 

9

 

Director

 

Percentage of Favourable Votes Cast by Proxy

 

Number of Favourable Votes Cast by Proxy

 

Alberto Arias

 

82.22

%

262,720,977

 

David Brace

 

91.52

%

292,413,971

 

Jonathan Lee

 

82.64

%

264,045,504

 

Daniel Tellechea

 

94.66

%

302,448,074

 

Koko Yamamoto

 

76.31

%

243,809,342

 

 

Mr. Paulo Misk was appointed to the Board on September 8, 2019 to fill the vacancy created by the departure of Mr. Mark Smith.

 

Nominees for Election as Directors

 

Unless authority to do so with respect to one or more directors is withheld, the persons named in the accompanying form of proxy intend to vote FOR the election of each of the six nominees whose names are set forth below as directors:

 

·   Alberto Arias

·   Paulo Misk

·   David Brace

·   Daniel Tellechea

·   Jonathan Lee

·   Koko Yamamoto

 

We do not anticipate that any of the nominees will be unable to serve as a director, but if that should occur for any reason prior to the Meeting or any postponement or adjournment thereof, it is intended that discretionary authority shall be exercised by the persons named in the accompanying form of proxy to vote any proxy for the election of the remaining nominees and any other person or persons in place of any nominee or nominees unable to serve.

 

The following table sets forth biographical and other information on each proposed nominee for election as a director:

 

Alberto Arias

Miami, United States

 

GRAPHIC

 

Director Since: April 11, 2011

Age: 54

 

 

Mr. Arias is the founder and Portfolio Manager of Arias Resource Capital Management LP and has over 25 years of experience in the field of international mining finance. Prior to founding Arias Resource Capital Management LP, Mr. Arias worked for eight years at Goldman, Sachs & Co., most recently acting as Managing Director and Head of Equity Research for metals and mining in the U.S., Canada and Latin America. Prior to Goldman Sachs, Mr. Arias worked for four years at UBS Warberg as Executive Director and Analyst covering the Latin American metals and mining sector.

 

Principal Occupation (Past 5 years): Portfolio Manager of Arias Resource Capital Management LP

 

Public Company Directorships: Sierra Metals Inc. (TSX)

 

Securities Held

 

Common Shares(1)

 

RSUs(2)

 

At-Risk Value of Common
Shares and RSUs(3)

 

Options(4)

 

At-Risk Value of Common Shares, RSUs
and Options(5)

 

246,779,656

(6)

Nil

 

$

271,457,621.60

 

538,000

 

$

271,690,321.60

 

 

Current Board and Committee Positions/Membership and Attendance

 

 

Independent Member of the Board (Non-Executive Chair)   Member, Sales Committee

Board Meetings Attended 2019: 11 of 11 — 100% `

Member, Compensation Committee (Chair)

Compensation Committee Meetings Attended 2019: 7 of 7 — 100%

Member, Governance Committee (Chair)

Governance Committee Meetings Attended 2019: 4 of 4 - 100%

 

Sales Committee Meetings Attended 2019: 6 of 6 - 100%

 

10

 

David Brace
Ontario, Canada

 

GRAPHIC

 

Director Since: June 26, 2012

Age: 68

 

 

Mr. Brace served as Chief Executive Officer of Karmin Exploration Inc. from September 2011 to October 2019. Between January through September of 2011, Mr. Brace served as President of Lambton Capital Inc., a private investment firm focused on evaluating mining investments. Prior to this, Mr. Brace served as the Chief Executive Officer and a director of GlobeStar Mining Corporation until that company’s acquisition by Perilya Limited in December of 2010. Prior to this, Mr. Brace served as Executive Vice-President of Business Development with Aur Resources until August of 2007.

 

Principal Occupation (Past 5 years): Chief Executive Officer and a director of Karmin Exploration Inc. until October 2019, thereafter consultant.

 

Public Company Directorships: None

 

Securities Held

 

Common Shares(1)

 

RSUs(2)

 

At-Risk Value of Common
Shares and RSUs(3)

 

Options(4)

 

At-Risk Value of Common Shares, RSUs
and Options(5)

 

200,727

 

Nil

 

$

220,799.70

 

523,000

 

$

443,824.70

 

 

Current Board and Committee Positions/Membership and Attendance

 

 

Independent Member of the Board
Member, Audit Committee
Member, Compensation Committee
Member, Operations Committee

Board Meetings Attended 2019: 11 of 11 — 100%
Audit Committee Meetings Attended 2019: 4 of 4 — 100%
Compensation Committee Meetings Attended 2019: 7 of 7 - 100%
Operations Committee Meetings Attended 2019: 3 of 3 - 100%

 

Jonathan Lee
Miami, United States

 

GRAPHIC

 

Director Since: April 4, 2019
Age: 39

 

 

Mr. Lee is a Vice President with the private equity firm Arias Resource Capital Management LP. Prior to Arias Resource Capital Management, Mr. Lee worked with Ambac Assurance Corporation, a global bond insurer. Prior to Ambac, Mr. Lee held positions with the investment firm Raging River Capital, the mining hedge fund Geologic Resource Partners LLC, and Byron Capital Markets Ltd. in Canada as a mining & metals equity research analyst. Additionally, Mr. Lee has prior experience as an Environmental Engineer with several construction and engineering firms. Mr. Lee previously sat on the boards of Park Lawn Company Ltd. and Bearing Lithium Corp. Mr. Lee earned his MBA from the Stern School of Business at New York University and holds a BS in Chemical Engineering with a minor in Economics from Tufts University.

 

Principal Occupation (Past 5 years): Vice President, Arias Resource Capital Management LP

 

Public Company Directorships: None

 

Securities Held

 

Common Shares(1)

 

RSUs(2)

 

At-Risk Value of Common
Shares and RSUs(3)

 

Options(4)

 

At-Risk Value of Common Shares, RSUs
and Options(5)

 

Nil

 

Nil

 

Nil

 

150,000

 

$

64,500.00

 

 

Current Board and Committee Positions/Membership and Attendance

 

 

Independent Member of the Board
Member, Operations Committee
Member, Sales Committee

Board Meetings Attended 2019: 8 of 8 — 100%
Operations Committee Meetings Attended 2019: 3 of 3 - 100%
Sales Committee Meetings Attended 2019: 6 of 6 - 100%

 

11

 

Paulo Misk

 

GRAPHIC

 

Minas Gerais, Brazil
Director Since: September 8, 2019
Age: 57

 

 

Mr. Misk is a mining engineer with over 28 years’ experience in operational management at mining facilities for various large multi-national mining companies across a wide range of commodities, including: niobium, chromite, iron, tin, gold, lithium and a range of other industrial minerals. Prior to becoming Chief Executive Officer of Largo in September, 2019, Mr. Misk served as Chief Operating Officer of Vanádio de Maracás S.A., Largo’s operating subsidiary from November, 2014 to September 8, 2019.  Prior thereto, Mr. Misk ran Anglo American’s Catalão Project from 2011 to 2014 where he was promoted to Head of Niobium Operations after serving as Niobium General Manager for one year. Mr. Misk’s prior experience also includes several years as Talc Operational Director and as Geology, Mining Operation Manager for GP Investments’ Magnesita Refratátorios project in Brazil between 2002 and 2010. Additionally, he served as Operational Director for AMG Group where he managed their tantalum, niobium, tin, feldspar and lithium operations between 2010 and 2011. Between 1994 and 2002, Mr. Misk spent his earlier career with AMG Group as Industrial Minerals Manager after being promoted from Tantalum and Niobium Division Manager.

 

Principal Occupation (Past 5 years): Chief Executive Officer and Chief Operating Officer of Largo

 

Public Company Directorships: None

 

Securities Held

 

Common Shares(1)

 

RSUs(2)

 

At-Risk Value of Common
Shares and RSUs(3)

 

Options(4)

 

At-Risk Value of Common Shares, RSUs
and Options(5)

 

365,131

 

813,393

 

$

1,296,376.40

 

1,788,889

 

$

2,102,598.67

 

 

Current Board and Committee Positions/Membership and Attendance

 

 

Non-Independent Member of the Board

Board Meetings Attended 2019: 2 of 2 - 100%

 

Daniel Tellechea
Arizona, United States

GRAPHIC

 

Director Since: July 9, 2015
Age: 74

 

 

Mr. Tellechea has business experience in Brazil and extensive experience in international mining, most recently serving as President & CEO of Sierra Metals, Inc. between 2007 and 2014, a Toronto based mining company listed on both the Toronto (TSX) and Lima (BVL) Stock Exchanges with assets in Mexico and Peru. Prior to Sierra Metals, Mr. Tellechea was President and CEO of Asarco LLC from 2003 to 2005, he served as the Managing Director of Finance and Administration for Asarco’s parent, Grupo Mexico from 1994 to 2003 and also served as Asarco’s Chief Financial Officer and Vice-president of finance for Southern Copper Corporation from 1999 to 2003, which was majority owned by Grupo Mexico.

 

Principal Occupation (Past 5 years): Consultant

 

Public Company Directorships: None

 

Securities Held

 

Common Shares(1)

 

RSUs(2)

 

At-Risk Value of Common
Shares and RSUs(3)

 

Options(4)

 

At-Risk Value of Common Shares, RSUs
and Options(5)

 

Nil

 

Nil

 

Nil

 

440,000

 

$

193,500.00

 

 

Current Board and Committee Positions/Membership and Attendance

 

 

Independent Member of the Board
Member, Audit Committee
Member, Governance Committee Member, Member
Operations Committee (Chair)
Member Sales Committee (Chair)

Board Meetings Attended 2019: 11 of 11 — 100%
Audit Committee Meetings Attended 2019: 4 of 4 — 100%
Governance Committee Meetings Attended 2019: 4 of 4 — 100% Operations Committee Meetings Attended 2019: 3 of 3 - 100%
Sales Committee Meetings Attended 2019: 6 of 6 - 100%

 

12

 

Koko Yamamoto

GRAPHIC

 

Ontario, Canada
Director Since: July 9, 2015
Age: 48

 

 

Ms. Yamamoto is a chartered professional accountant. She is a partner at McGovern Hurley LLP, a CPAB registered firm, since 2003 and her practice includes a focus on assurance engagements for reporting issuers in the resource sector. Ms. Yamamoto is involved in initial public offerings and private placements, mergers and acquisitions. Ms. Yamamoto is also registered as a panel auditor with the Investment Industry Regulatory Organization of Canada (IIROC), which enables her to conduct audits of investment dealers. Prior to joining McGovern Hurley LLP in 1998, Ms. Yamamoto worked for a start-up Japanese medical technology company, both in Tokyo and San Francisco.

 

Principal Occupation (Past 5 years): Partner at McGovern Hurley LLP

 

Public Company Directorships: Sierra Metals Inc. (TSX)

 

Securities Held

 

Common Shares(1)

 

RSUs(2)

 

At-Risk Value of Common
Shares and RSUs(3)

 

Options(4)

 

At-Risk Value of Common Shares, RSUs
and Options(5)

 

Nil

 

Nil

 

Nil

 

260,000

 

$

64,500.00

 

 

Current Board and Committee Positions/Membership and Attendance

 

 

Independent Member of the Board
Member, Audit Committee (Chair)
Member, Compensation Committee
Member, Governance Committee

Board Meetings Attended 2019: 11 of 11 — 100%
Audit Committee Meetings Attended 2019: 4 of 4 — 100%
Compensation Committee Meetings Attended 2019: 7 of 7 — 100%
Governance Committee Meetings Attended 2019: 4 of 4 — 100%

 

Notes:

 

(1)         The Common Shares indicated for each nominee are those beneficially owned, directly or indirectly, or over which control or direction is exercised, by the nominee as at May 1, 2020. The information about Common Shares over which control or direction is exercised, not being within the knowledge of Largo, has been furnished by the respective nominees. Unless otherwise indicated, beneficial ownership is direct and the nominee has sole voting and investment power.

 

(2)         RSUs held as at May 1, 2020. For additional information regarding the RSU Plan, please see “Statement of Executive Compensation”.

 

(3)         Based on the closing price of Common Shares on the Toronto Stock Exchange (“TSX”) of $1.10 on May 1, 2020.

 

(4)         Options held as at May 1, 2020. For additional information regarding Options held by directors, please see “Statement of Executive Compensation”.

 

(5)         Based on the closing price of Common Shares on the TSX of $1.10 on May 1, 2020 less the applicable exercise price for Options.

 

(6)         Held by the ARC Funds, see “Voting Information — Voting Shares and Principal Holders”.

 

Corporate Cease Trade Orders or Bankruptcies

 

Except as set out below, (a) no proposed director of the Company is, or within ten years prior to the date hereof has been, a director, chief executive officer or chief financial officer of any company (including the Company) that, (i) was subject to a cease trade order, an order similar to a cease trade order or an order that denied the relevant company access to any exemption under securities legislation, in each case that was in effect for a period of more than 30 consecutive days (an “order”), that was issued while the proposed director was acting in the capacity as director, chief executive officer or chief financial officer; or (ii) was subject to an order that was issued after the proposed director ceased to be a director, chief executive officer or chief financial officer and which resulted from an event that occurred while that person was acting in the capacity as director, chief executive officer or chief financial officer; (b)  no proposed director of the Company (i) is, or within ten years prior to the date hereof has been, a director or executive officer of any company (including the Company) that, while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets; or (ii) has, within ten years prior to the date hereof, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the proposed director; and (c) no proposed director of the Company has been subject to (i) any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities

 

13

 

regulatory authority; or (ii) any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable shareholder in deciding whether to vote for a proposed director.

 

From March 28, 2013 until January 21, 2014, Mr. Arias served as a director on the board of Colossus Minerals Inc. (“Colossus”). On January 14, 2014, Colossus filed a notice of intention to make a proposal under the Bankruptcy and Insolvency Act (Canada). Colossus was delisted from the TSX effective February 21, 2014.

 

Mr. Tellechea was a director of Mercator Minerals, Ltd. until September 4, 2014. Mercator filed a notice of intention to make a proposal under the Bankruptcy and Insolvency Act (Canada) on August 26, 2014.

 

3.                   APPOINTMENT OF AUDITORS

 

The auditors of Largo are PricewaterhouseCoopers LLP (“PwC”), and they have been the auditors of Largo since March 18, 2015.

 

Unless authority to do so is withheld, the persons named in the accompanying form of proxy intend to vote FOR the appointment of PwC, as Largo’s auditors, to hold office until the next annual meeting of shareholders, and to authorize the directors to fix their remuneration.

 

Fees

 

For the years ended December 31, 2019 and 2018, PwC was paid fees in Canadian dollars from Largo as detailed below:

 

 

 

December 31, 2019

 

December 31, 2018

 

Audit Fees(1)

 

$

100,000

 

$

95,000

 

Audit-Related Fees(2)

 

$

45,000

 

$

45,000

 

Tax Fees(3)

 

$

144,925

 

$

146,455

 

Other Fees

 

$

20,500

 

$

221,900

 

Total Fees

 

$

310,425

 

$

508,355

 

 

Notes:

 

(1)         For the fiscal years ended December 31, 2019 and 2018, Largo also incurred “Audit Fees” of R$342,289 and R$296,000, respectively, relating to PwC Brazil, external auditors of Vanádio in Brazil; and €15,000 (Nil 2018), relating to PwC Ireland, external auditors of Largo Commodities Holding Limited (“Largo Ireland”) in Ireland.

 

(2)         “Audit-Related Fees” related to the performance of PwC’s review of Largo’s financial statements not included in “Audit Fees” above.

 

(3)         For the fiscal years ended December 31, 2019 and 2018, Largo also incurred “Tax Fees” of R$43,837 and R$58,467, respectively, relating to PwC Brazil, external auditors of Vanádio in Brazil. “Tax Fees” related to corporate tax compliance, tax planning and other related tax services. “Other Fees” related to other advisory services. For the fiscal years ended December 31, 2019, Largo also incurred “Tax Fees” of €31,000 (Nil 2018), relating to PwC Ireland, external auditors of Largo Ireland in Ireland.

 

Pre-Approval Policies and Procedures

 

The Audit Committee has not adopted separate policies and procedures for the engagement of non-audit services. The Audit Committee’s charter provides that the Audit Committee must pre-approve all non-audit services to be provided to Largo or any subsidiary entities by its external auditors or by the external auditors of such subsidiary entities. The Audit Committee may delegate to one or more of it members the authority to pre-approve non-audit services but pre-approval by such member or members so delegated shall be presented to the full Audit Committee at its first scheduled meeting following such pre-approval.

 

4.                   SHARE COMPENSATION PLAN

 

We currently have a “rolling” 10% Share Compensation Plan which was approved by shareholders at the annual and special meeting of shareholders held on June 28, 2017.

 

14

 

Pursuant to the requirements of the TSX, the Share Compensation Plan must be presented to the shareholders of the Company for renewal and for ratification of the unallocated entitlements every three (3) years, failing which no further entitlements may be awarded under the Share Compensation Plan. Accordingly, at the Meeting, shareholders will be asked to consider, and if thought advisable, pass an ordinary resolution (the “Share Compensation Plan Resolution”), as further set out below, to: (i) approve the Share Compensation Plan, and in connection with this approval, will be asked to consider and approve certain amendments to the Share Compensation Plan as further described herein (such amended Share Compensation Plan being hereinafter referred to as the “Amended Share Compensation Plan”); and (ii) approve the unallocated entitlements available thereunder for the ensuing three (3) years.

 

The Amended Share Compensation Plan has been conditionally approved by the Board and the TSX, subject to shareholder approval at the Meeting. The Amended Share Compensation Plan is the same in all material respects to the Share Compensation Plan, other than with respect to the following amendments. The Share Compensation Plan is amended to:

 

·                  enable Participants (as defined in the plan) to elect to defer the receipt of all or any part of their entitlement to Shares upon the grant and vesting of an RSU, as applicable, until a date (the “Deferred Payment Date”) following the vesting of such RSU as may be determined by the Administrators (as defined in the plan), or as otherwise set out in the plan. Participants who elect to set a Deferred Payment Date shall be required to provide prior notice to the Company of such date and, subject to certain restrictions, may change a Deferred Payment Date by providing prior notice to the Company;

 

·                  enable a Participant to elect, subject to the consent of the Administrators, to redeem such portion (and only such portion) of its vested RSUs for a cash amount equal to the Withholding Obligations (as defined in the plan) associated with the aggregate number of RSUs to be redeemed;

 

·                  other changes of a “housekeeping nature”.

 

A summary of the Share Compensation Plan (including the amendments thereto as per the Amended Share Compensation Plan) is provided in this Circular under the heading “Equity Compensation Plan Information — Share Compensation Plan”. A copy of the Amended Share Compensation Plan is attached to this Circular as Schedule “C”.

 

In accordance with the rules of the TSX, in order to be effective, the Share Compensation Plan Resolution must be approved by the affirmative vote of the majority of the votes cast by the shareholders present in person or represented by proxy at the Meeting with respect to such resolution. If the Share Compensation Plan Resolution is approved at the Meeting, the Amended Share Compensation Plan will become effective as at the close of business on the date of the Meeting. If approval is not obtained at the Meeting, RSUs and Options which have not been allocated as of June 8, 2020 and RSUs or Options which are outstanding as of June 8, 2020 and are subsequently cancelled, terminated or exercised will not be available for a new grant of options. Furthermore, we will not be permitted to award further entitlements under the Share Compensation Plan. Previously allocated options will continue to be unaffected by the approval or disapproval of the resolution.

 

At the Meeting, shareholders will be asked to approve the Share Compensation Plan Resolution, the text of which is attached hereto as Schedule “A”.

 

The persons named in the accompanying form of proxy intend to vote FOR the ordinary resolution approving the Amended Share Compensation Plan and the approval of the unallocated entitlements thereunder.

 

STATEMENT OF CORPORATE GOVERNANCE PRACTICES

 

Our Board believes that sound corporate governance practices are essential to our stewardship of Largo. Our Board supervises the management of the business and the affairs of Largo with a view to ensuring that shareholder value is enhanced and high ethical and legal standards are adhered to. Acting on the recommendation of its Governance Committee, the Board has developed its corporate governance practices to assist it in fulfilling its supervisory role. The Board fulfills its mandate directly and through its committees.

 

15

 

The following is a description of Largo’s corporate governance practices, prepared in accordance with Form 58-101F1 — Corporate Governance Disclosure of the Canadian Securities Administrators, as approved by the Board.

 

BOARD OF DIRECTORS

 

Independence

 

For a director to be considered independent under National Instrument 58-101 — Disclosure of Corporate Governance Practices (“NI 58-101”) of the Canadian Securities Administrators, he or she must have no direct or indirect material relationship with Largo, being a relationship that could, in the view of the Board, reasonably be expected to interfere with the exercise of his or her independent judgment, and must not be in any relationship deemed to be not independent pursuant to such requirements.

 

The Board has considered the relationship to Largo of each of the nominees for election by the shareholders and has determined that five of the six directors nominated for election at the Meeting are independent. Paulo Misk is not independent by virtue of his position as Chief Executive Officer of Largo. As a result, a majority (and in fact, more than two-thirds) of the nominees are independent.

 

Public Company Board Memberships

 

The following nominees for election as directors are presently a director of another issuer that is a reporting issuer (or the equivalent) in Canada or a foreign jurisdiction.

 

Nominee

 

Company

Alberto Arias

 

Sierra Metals Inc. (TSX)

Koko Yamamoto

 

Sierra Metals Inc. (TSX)

 

We do not restrict the number of public company boards of directors on which our directors may sit. However, our directors are expected to devote the required time and effort to discharge their obligations as members of the Board. Currently, three of our directors sit on the boards of other reporting issuers, and three or our directors sit together on the board of one other reporting issuer. None of our directors sit together on two or more other boards of other reporting issuers. None of our directors sit on four or more S&P/TSX company boards.

 

In Camera Meetings

 

The independent directors of the Board do not hold regularly scheduled meetings at which non-independent directors and members of management are not in attendance. However, they have the opportunity to, and do hold, ad hoc meetings that are not attended by the non-independent directors and members of management and they avail themselves of this opportunity, at their entire discretion, whenever necessary. The Company holds regular quarterly meetings and other meetings as required, at which time the independent directors meet in camera. The opinion of the independent directors is sought and duly acted upon for all material matters related to the Company.

 

Independent Chair of the Board

 

Mr. Arias was appointed non-executive Chairman of the Board effective September 8, 2019, and is independent within the meaning of National Instrument 52-110 Audit Committees. The Board is comprised of a majority (and in fact, more than two-thirds) of independent directors.

 

Board and Committee Meetings and Attendance

 

The Board meets a minimum of four times per year and as otherwise required. Typically, each committee (other than the Audit Committee which meets at least four times each year) will meet approximately two times each year, or more frequently as deemed necessary by the applicable committee. The frequency of meetings and nature of each meeting

 

16

 

agenda depends on the business and affairs that Largo faces from time to time. The table below provides details regarding director attendance at Board and committee meetings held during the year ended December 31, 2019.

 

 

 

Board of
Directors

 

Audit
Committee

 

Compensation
Committee

 

Governance
Committee

 

Operations
Committee

 

Sales
Committee

Directors

 

Meetings
attended and %

 

Meetings
attended and %

 

Meetings
attended and %

 

Meetings
attended and %

 

Meetings
attended and %

 

Meetings
attended and %

Alberto Arias

 

11 of 11 - 100%

 

N/A

 

7 of 7 - 100%

 

4 of 4 - 100%

 

N/A

 

6 of 6 - 100%

David Brace

 

11 of 11 - 100%

 

4 of 4 - 100%

 

7 of 7 - 100%

 

N/A

 

3 of 3 - 100%

 

N/A

Jonathan Lee(1)

 

8 of 8 - 100%

 

N/A

 

N/A

 

N/A

 

3 of 3 - 100%

 

6 of 6 - 100%

Paulo Misk(2)

 

2 of 2 - 100%

 

N/A

 

N/A

 

N/A

 

N/A

 

N/A

Daniel Tellechea

 

11 of 11 - 100%

 

4 of 4 - 100%

 

N/A

 

4 of 4 - 100%

 

3 of 3 - 100%

 

6 of 6 - 100%

Koko Yamamoto

 

11 of 11 - 100%

 

4 of 4 - 100%

 

7 of 7 - 100%

 

4 of 4 - 100%

 

N/A

 

N/A

 

Notes:

 

(1)         Mr. Lee was appointed to the Board as a nominee director of ARC Funds effective April 4, 2019 to fill the vacancy created by the earlier resignation of the ARC Funds’ nominee director, Mr. Sam Abraham.

 

(2)         Mr. Paulo Misk was appointed to the Board on September 8, 2019 to fill the vacancy created by the departure of Mr. Mark Smith.

 

Board Mandate

 

The Board has adopted a written mandate, a copy of which is attached to this Circular as Schedule “B” and is posted on Largo’s website at www.largoresources.com.

 

COMMITTEES OF THE BOARD

 

The Board has established four standing committees to assist it in discharging its mandate. The roles of the committees are outlined below.

 

Independence of Committees

 

The members of the Board’s committees are appointed by the Board upon the recommendation of the Governance Committee. All of our directors who are currently members of committees of the Board are independent directors. As a result, all of our committees of the Board are composed entirely (100%) of independent directors.

 

Audit Committee

 

Members: Koko Yamamoto (Chair), David Brace and Daniel Tellechea.

 

National Instrument 52-110 — Audit Committees (“NI 52-110”) of the Canadian Securities Administrators governs the composition and function of audit committees for every TSX-listed company, including the Company. NI 52-110 requires the Company to have a written charter that sets out its mandate and responsibilities and to make the disclosure required by Form 52-110F1 in its annual information form.

 

The purpose of the Audit Committee is to assist the Board in fulfilling its oversight responsibilities with respect to:

 

·                  financial reporting and disclosure requirements,

 

·                  ensuring that an effective risk management and financial control framework has been implemented and tested by management of Largo, and

 

·                  external and internal audit processes.

 

17

 

Our Annual Information Form is filed under the Company’s profile on SEDAR at www.sedar.com. A copy of the Audit Committee’s charter is attached as Schedule “B” thereto and is posted on Largo’s website at www.largoresources.com.

 

Compensation Committee

 

Members:  Alberto Arias, David Brace, and Koko Yamamoto.

 

The Compensation Committee assists the Board in fulfilling its responsibilities relating to compensation, succession planning and other human resources matters. The Committee is responsible for:

 

·                  overseeing Largo’s employees, including matters relating to compensation, succession planning and other human resources matters;

 

·                  identifying the principal risks of Largo’s business related to human resources matters and overseeing the implementation of appropriate systems to manage these risks; and

 

·                  overseeing Largo’s compliance with applicable laws and regulations and its compliance with all significant policies and procedures approved by the Board from time to time, in relation to human resources matters.

 

A copy of the Compensation Committee’s charter is posted on Largo’s website at www.largoresources.com.

 

For a detailed discussion of the responsibilities of the Compensation Committee relating to compensation, see “Compensation” and “Statement of Executive Compensation” below.

 

Governance Committee

 

Members: Alberto Arias (Chair), Daniel Tellechea, and Koko Yamamoto.

 

The Board has overall responsibility for developing Largo’s approach to corporate governance, including keeping informed of legal requirements and trends regarding corporate governance, monitoring and evaluating the functioning of the Board and committees of the Board, and for developing, implementing and monitoring good corporate governance practices (including the mandate of the Board and the charters of its committees and corporate governance related policies and procedures). The Governance Committee assists the Board in fulfilling its responsibilities relating to corporate governance matters and director nominations. The Committee is responsible for:

 

·                  developing, reviewing, monitoring and evaluating Largo’s corporate governance practices;

 

·                  considering director nomination matters, including the selection and the nomination of qualified and suitable directors;

 

·                  the evaluation of the effectiveness of the Board, its committees and individual directors;

 

·                  identifying the principal risks of Largo’s business related to corporate governance matters and overseeing the implementation of appropriate systems to manage these risks; and

 

·                  overseeing Largo’s compliance with applicable laws and regulations and its compliance with all significant policies and procedures approved by the Board from time to time, in relation to corporate governance matters.

 

A copy of the Governance Committee’s charter is posted on Largo’s website at www.largoresources.com.

 

Operations Committee

 

Members: Daniel Tellechea (Chair), David Brace, and Jonathan Lee.

 

The purpose of the Operations Committee is to assist the Board in fulfilling its oversight responsibilities with respect to matters that are technical and operational in nature, including:

 

·                  technical matters relating to exploration, development, permitting, construction and operation of Largo’s mining activities;

 

18

 

·                  resources and reserves on Largo’s properties;

 

·                  material technical commercial arrangements;

 

·                  operating and production plans for proposed and existing operating mines;

 

·                  due diligence in the development, implementation and monitoring of systems and programs for the management and compliance with applicable laws related to health, safety, environmental and social responsibility; and

 

·                  ensuring Largo implements best-in-class property development and operating practices.

 

A copy of the Operations Committee’s charter is posted on Largo’s website at www.largoresources.com.

 

Sales Committee

 

Members: Daniel Tellechea (Chair), Alberto Arias, and Jonathan Lee.

 

The purpose of the Sales Committee is to assist the Board in fulfilling its oversight responsibilities with respect to the Company’s sales and trading divisions, including:

 

·                  reviewing material commercial sales arrangements;

 

·                  ensuring sales and trading activities are in-line with Company objectives and strategy; and

 

·                  identifying the principal risks of material sales agreements and overseeing management of these risks.

 

POSITION DESCRIPTIONS

 

Board-Level Position Descriptions

 

The Board has developed a written position description for the directors of Largo. The Board has also adopted written position descriptions for the Chairman of the Board and the Chairs of Board Committees. Copies of these position descriptions are posted on Largo’s website at www.largoresources.com.

 

Chairman of the Board

 

The Chairman of the Board is Mr. Alberto Arias. The Board has established a written position description for the Chairman who is responsible for, among other things, presiding at meetings of the Board and shareholders, providing leadership to the Board, managing the Board, acting as liaison between the Board and management, and, together with the CEO, representing the Company to external groups including shareholders, local communities and governments.

 

Chair of Board Committees

 

The Board has established a written position description for Chairs of Committees who are responsible for, among other things, providing leadership to the Committee, managing the timely discharge of the Committee’s duties and responsibilities, managing the conduct of the Committee, acting as liaison between the Committee, the Board and management, and reporting to the Board on behalf of the Committee.

 

CEO Position Description

 

The Chief Executive Officer (“CEO”) of the Company is Mr. Paulo Misk. The Board has established a written position description for the CEO who is responsible for, among other things, the day-to-day management of the business and affairs of the Company. The CEO is also responsible for recommending to the Board, together with the CFO and such other management as appropriate, for approval of the Company’s financial and operating goals and objectives, formulating and presenting to the Board long-term business plans, strategies and policies and keeping the Board informed of the Company’s progress, and together with the Chairman of the Board serving as the Company’s principal spokesperson. The Board exercises its responsibility for oversight through the approval of all decisions that affect Largo before they are implemented. A copy of the CEO position description is posted on Largo’s website at www.largoresources.com.

 

19

 

ORIENTATION AND CONTINUING EDUCATION

 

The Board is responsible for arranging for new directors to receive a comprehensive orientation so that they fully understand the role of the Board and its committees, as well as the contribution individual directors are expected to make (including, in particular, the commitment of time and energy that Largo expects from its directors), and the nature and operation of Largo’s business. The Governance Committee oversees director orientation to facilitate a smooth and timely integration of directors into their new roles as members of the Board. New directors meet with the chair of the Board, when applicable, committee chairs and the CEO, to discuss Largo’s strategy and business, the culture of Largo and its Board. New directors are provided with an orientation package which includes reports on operations and results, public disclosure filings by Largo and corporate governance related documentation (i.e. written mandates, charters, position descriptions and policies and procedures).

 

The Board is also responsible for arranging continuing education opportunities for all directors, so that they may maintain or enhance their skills and abilities as directors, and ensure that their knowledge and understanding of Largo’s business remains current. The Governance Committee oversees director continuing education, to provide directors with an ongoing program to assist them in understanding their responsibilities, as well as keeping their knowledge and understanding of Largo’s business current. Presentations by external experts and management on the business and on specialized and complex aspects of Largo’s operations are provided to directors. It is expected that directors will identify their continuing education needs through future Board assessments.

 

ETHICAL BUSINESS CONDUCT

 

Code of Business Conduct and Ethics

 

As part of its commitment to conducting its business and affairs with honesty, integrity and in accordance with high ethical and legal standards, the Board has adopted a Code of Business Conduct and Ethics (the “Code”) which applies to all of our directors, officers, employees, consultants and contractors. The Code addresses such matters as compliance with laws, protection and proper use of assets, conflict of interest, corporate opportunities, reporting violations and consequences of non-compliance.

 

Any director, officer, employee, consultant and contractor of Largo who becomes aware of any instance where Largo receives a solicitation to engage in any act prohibited by the Code, or who becomes aware of any information suggesting that a violation of the Code has occurred or is about to occur is required to report it through Largo’s Ethics Hotline in accordance with Largo’s whistle blowing policy (discussed below).

 

In addition, the Governance Committee is responsible for: (i) ensuring that management has established a system to monitor compliance with and enforce the Code; (ii) obtaining reports from management that Largo and its directors, officers and employees are in compliance with the Code; (iii) making recommendations to the Board regarding any waivers from the Code; and (iv) advising the Board with respect to Largo’s policies and procedures regarding compliance with the Code.

 

Any waiver of the Code with respect to a director or officer of Largo may be made only by the Board. The Board did not grant any waiver of the Code in 2019. In the unlikely event of such a waiver, it will be promptly disclosed to the extent required by applicable laws or stock exchange rules and regulations.

 

A copy of the Code is posted on Largo’s website at www.largoresources.com.

 

Conflicts of Interest

 

Under the Code, directors, officers, employees, consultants and contractors are required to perform their duties and arrange their personal business affairs in a manner that does not interfere with their independent exercise of judgement. No director, officer or employee of Largo or consultant or contractors working for Largo is permitted to accept financial compensation of any kind, nor any special discount, loan or favour, from persons, corporations or organizations having dealings or potential dealings with Largo.

 

20

 

The Board has also adopted a gifts and hospitality policy (the “Gifts & Hospitality Policy), which applies to all directors, officers, employees, consultants and contractors of Largo. If any of such persons become aware of any information suggesting that a violation of this policy has occurred or is about to occur, they are required to report it through Largo’s Ethics Hotline in accordance with Largo’s whistle blowing policy (discussed below). A copy of the Gifts & Hospitality Policy is posted on Largo’s website at www.largoresources.com.

 

Non-executive directors of Largo are not expected to devote their time and effort solely on behalf of Largo, and they may have a variety of other business relationships that could give rise to a conflict of interest. Any such potential conflicts of interest are not subject to the Code and are to be resolved directly with the Board.

 

Other Policies

 

Largo has adopted a whistle blowing policy (the “Whistle Blowing Policy”) which provides procedures for reporting governance concerns, including any matter, which in the reasonable and genuinely held belief of a director, officer, employee, consultant or contractor of Largo, represents malpractice, is illegal, unethical, irregular or criminal, contrary to the policies of Largo or in some other manner not right or proper.

 

Largo takes a zero-tolerance approach to bribery and corruption and is committed to acting professionally, fairly and with integrity in all its business dealings and relationships. The Board has adopted an anti-bribery and corruption policy (the “Anti-Bribery Policy”), the purpose of which is to set out Largo’s responsibilities, and of those working for it, in observing and upholding its position on bribery and corruption, and to provide information and guidance to those working for it on how to recognize and deal with bribery and corruption issues.

 

The Board has adopted a corporate disclosure policy (the “Corporate Disclosure Policy”) to reinforce Largo’s commitment to compliance with the continuous disclosure obligations imposed by Canadian securities laws and the rules and regulations of the TSX. This policy sets clear guidelines for directors, officers and employees on disclosure requirements and practices and confirms in writing Largo’s disclosure policies to ensure compliance with such laws, rules and regulations as well as to ensure that timely and accurate information is provided equally to all shareholders and market participants regarding Largo.

 

The Board has also adopted an insider trading policy (the “Insider Trading Policy”) to ensure that Largo and all directors, officers, employees, consultants and contractors of Largo and its subsidiaries meet their obligations under applicable securities laws and stock exchange rules by ensuring that all such persons who have material non-public information do not engaged in insider trading or tipping.

 

Copies of the Whistle Blowing Policy, the Anti-Bribery Policy, the Corporate Disclosure Policy and the Insider Trading Policy are posted on Largo’s website at www.largoresources.com.

 

NOMINATION OF DIRECTORS

 

The Board is responsible for identifying individuals qualified to become new Board members and recommending the new director nominees for the next annual meeting of shareholders. Prior to nominating individuals as directors, the Board: (i) considers what competencies and skills the Board, as a whole, should possess; (ii) assesses what competencies and skills each existing director possesses; and (iii) considers the appropriate size of the Board, with a view to facilitating effective decision-making. The Governance Committee assists the Board with these responsibilities. The Governance Committee’s composition and responsibilities are set out in its charter (discussed above).

 

With respect to nomination matters, the Governance Committee is specifically responsible for considering and making recommendations to the Board on the size and composition of the Board. The Governance Committee also considers: (i) what competencies and skills the Board, as a whole, should possess; (ii) the competencies and skills each existing director possesses; and (iii) in recommending new nominees to the Board, the competencies and skills each new nominee will bring to the Board.

 

21

 

Pursuant to a Governance Agreement and an Amended and Restated Director Nomination Agreement entered into with ARC Funds, the ARC Funds currently possess the right to nominate three individuals to our Board. See “Matters to be Acted Upon at the Meeting — Election of Directors — Director Nominees of ARC Funds”.

 

Skills Matrix

 

The Governance Committee has developed a skills matrix comprised of skills and competencies it expects the Board as a whole to possess and has identified which of those skills and competencies are possessed by its existing directors. Set out below are the skills identified for each director.

 

Skills

 

Alberto
Arias

 

David
Brace

 

Jonathan
Lee

 

Paulo
Misk

 

Daniel
Tellechea

 

Koko
Yamamoto

Mining industry experience(1)

 

Ö

 

Ö

 

Ö

 

Ö

 

 

 

 

Corporate finance/M&A

 

Ö

 

 

 

Ö

 

 

 

Ö

 

Ö

Risk management

 

Ö

 

 

 

Ö

 

Ö

 

Ö

 

Ö

Accounting & finance

 

Ö

 

Ö

 

Ö

 

 

 

Ö

 

Ö

Human resources & compensation

 

Ö

 

Ö

 

 

 

Ö

 

Ö

 

Ö

Legal

 

 

 

 

 

 

 

 

 

 

 

 

Corporate governance

 

Ö

 

Ö

 

 

 

 

 

Ö

 

Ö

International(2)

 

Ö

 

Ö

 

Ö

 

 

 

Ö

 

 

Trading, logistics & commercial

 

Ö

 

 

 

 

 

Ö

 

Ö

 

 

Public company management(3)

 

Ö

 

Ö

 

 

 

 

 

Ö

 

 

Communications(4)

 

Ö

 

 

 

Ö

 

 

 

Ö

 

 

 

Notes:

 

(1)               This category encompasses experience with (i) environmental, safety and sustainability, (ii) mining operations, (iii) metallurgy, and (iv) exploration/geology.

 

(2)               This includes social, economic and foreign policy.

 

(3)               This includes leading growth and operations.

 

(4)               This includes investor relations, public relations and media.

 

COMPENSATION

 

The Board is responsible for overseeing compensation matters (including compensation of officers and other senior management personnel) and approving the Company’s annual compensation budget. The Compensation Committee assists the Board with these responsibilities. The Compensation Committee’s composition and responsibilities are set out in its charter (discussed above). With respect to compensation matters, the Compensation Committee is specifically responsible for:

 

(a)         reviewing Largo’s overall compensation philosophy;

 

(b)         reviewing and making recommendations to the Board with respect to all executive officer and director compensation matters and all incentive compensation and equity-based plans, including:

 

(i)                                     reviewing the corporate goals and objectives relevant to the compensation of the CEO and the other executive officers of Largo and recommending those goals and objectives to the Board;

 

(ii)                                  evaluating the CEO’s performance in light of his or her goals and objectives and recommending to the Board its assessment of the CEO’s performance and compensation;

 

(iii)                               through the CEO, reviewing the performance of the other executive officers in light of their goals and objectives and recommending to the Board its assessment of the other executive officers’ performances and compensation;

 

(iv)                              reviewing the adequacy, amount and form of compensation to be paid to each director and making recommendations to the Board based on this review;

 

22

 

(v)                                 reviewing and making recommendations to the Board with respect to the adoption and amendment of incentive compensation and equity-based plans, including the number of securities that may be issued under those plans during any particular period;

 

(c)          with respect to disclosure, obtaining advice on and tracking disclosure requirements related to compensation and reviewing Largo’s compensation-related disclosure before Largo publicly discloses such information; and

 

(d)         reviewing and approving the selection and terms of reference of any outside consultants retained to provide benchmark analysis and advice on compensation programs.

 

SUCCESSION PLANNING

 

The Board is also responsible for succession planning (including appointing, training and monitoring senior management). In particular, the Board annually identifies key individuals of the Company and, in consultation with management, determines how to replace such individuals should the need arise. The Compensation Committee assists the Board with these responsibilities. The Compensation Committee is specifically responsible for reviewing reports from the CEO regarding the proposed recruitment, appointment and termination of executive officers reporting to the CEO and making recommendations to the Board, and reviewing and recommending to the Board succession plans to be instituted for the CEO position, including the appointment, training and monitoring of potential successors.

 

ASSESSMENTS

 

To date, the Board and its individual directors have been assessed on an informal basis as to their effectiveness and contribution. The Board encourages discussion among members as to evaluation of its effectiveness as a whole and of each individual director. All directors are free to make suggestions for improvement of the Board’s practices at any time and are encouraged to do so.

 

While the Board has not yet completed a formal assessment process, the Board will be responsible for annually assessing its own effectiveness and contribution, as well as the effectiveness and contribution of each Board committee and each individual director. The Governance Committee will be responsible for determining and managing the processes for regularly assessing the effectiveness and contribution of the Board, each Board committee and each individual director, with a view to continuous improvement of Board and committee operations. Such assessments will consider:

 

(a)         in the case of the Board, its mandate;

 

(b)         in the case of a Board committee, the committee’s charter;

 

(c)          in the case of an individual director, the applicable position description(s), including the Position Description for Directors; and

 

(d)         monitoring the attendance of each individual director at Board meetings.

 

Following completion of such assessments, the Committee will identify areas for improvement, if any, and will monitor implementation of any measures designed to address such areas for improvement, if any. The Committee will periodically update the Board on progress in addressing areas for improvement, if any.

 

The Board expects to conduct its first formal assessment process in 2020.

 

DIRECTOR TERM LIMITS AND OTHER MECHANISMS OF BOARD RENEWAL

 

The Company has not adopted term limits for its directors as the Company is of the view that director term limits reduce continuity and experience on the Board and that term limits force valuable, experienced and knowledgeable directors to leave. As such, the Company views term limits as not in the Company’s best interests. To ensure adequate Board renewal, the Governance Committee will be responsible for conducting regular Board, committee and directors assessments (see above). These assessments will evaluate the tenure and performance of individual directors and review the composition and effectiveness of the Board and its committees. The results of these assessments will be reported to the Board, together with recommendations, if any, regarding the composition of the Board.

 

23

 

POLICIES REGARDING THE REPRESENTATION OF WOMEN

 

In identifying suitable candidates for nomination to the Board, the Governance Committee and the Board has not specifically considered the level of representation of women on the Board in identifying and nominating candidates for election or re-election to the Board. Rather, the Governance Committee and the Board have made their nomination and appointment decisions based on merit, regardless of gender, by assessing whether a person’s skills and experience are appropriate for a Board position. The Board has determined that, due to its current stage of development and the fact that the current nomination and appointment procedures have yielded appropriate candidates for nomination to the Board, it is unnecessary at this time to adopt a written policy regarding the identification and nomination of women directors, nor has it adopted a target regarding women on the Board. Currently, there is one woman on the Board (or currently 16% of the Board is comprised of women).

 

The Company has not specifically considered the level of representation of women in executive officer positions when making executive officer appointments, nor has it adopted a target regarding women in executive officer positions. Currently, there are no women (0%) serving in executive officer positions at the Company.

 

STATEMENT OF EXECUTIVE COMPENSATION

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Named Executive Officers

 

For 2019, our six most highly-paid named executive officers (“NEOs”), were:

 

·           Mark Smith*, Chief Executive Officer (“CEO”);

·           Paulo Misk*, President and CEO;

·           Ernest Cleave, Chief Financial Officer (“CFO”);

·           Luciano Chaves, Vice President of Finance and Administration;

·           David Harris, Corporate Controller; and

·           Alvaro Resende, Director, Production.

 

*Mr. Misk succeeded Mr. Smith as Chief Executive Officer on September 8, 2019, following his resignation from the Company.

 

Compensation Philosophy

 

Our compensation philosophy is premised on the belief that, to attract and retain talented individuals, we must provide competitive compensation and incentives which align with our long-term interests. Accordingly, the Compensation Committee and the Board recognize that a portion of total compensation must be variable and linked to corporate and individual achievements tied to our strategic plan. This helps to align the interests of management with the long-term interests of our shareholders.

 

Compensation Committee

 

The Board established the Compensation Committee to assist it in fulfilling its obligations relating to compensation, succession planning and other human resources matters. The members of the Compensation Committee are Alberto Arias, David Brace and Koko Yamamoto, each of whom are considered independent under NI 58-101. For additional information with respect to the Compensation Committee, see the information under the headings “Statement of Corporate Governance Practices — Committees of the Board — Compensation Committee; and Compensation” and “Statement of Executive Compensation — Compensation Discussion and Analysis — Compensation Governance”.

 

The responsibilities of the Compensation Committee are set forth in its Charter, which is posted on Largo’s website at www.largoresources.com.

 

24

 

Role of Management

 

Members of senior management assist the Compensation Committee by compiling information to be used in the Compensation Committee’s determinations and reporting on historical compensation levels, methods of compensation, compensation practices of industry peers, achieved performance relative to corporate and individual objectives, succession planning and recent compensation trends and regulatory initiatives.

 

The Compensation Committee relies, in part, on the CEO to review the performance of the other NEOs and to make recommendations to the Compensation Committee in this regard. Given the direct reporting relationship between the CEO and the other NEOs, the Compensation Committee believes the CEO is in the best position to directly assess the performance of the other senior executives. While the CEO typically attends Compensation Committee meetings, he is not present during in camera sessions of the Compensation Committee or when the Compensation Committee is considering his performance or compensation.

 

Elements of Executive Compensation

 

Base Salary

 

The Compensation Committee believes that the base salaries of our NEOs must be sufficiently competitive in the market to enable recruitment and encourage retention, while reflecting the scope of responsibility, skill and experience of each NEO. Encouraging retention is especially important in years when, due to low vanadium prices and other factors beyond our control, our financial performance warrants significantly lower annual bonuses and long-term incentive awards. As base salary represents a reference for other compensation elements, attention is paid to appropriately positioning salaries, taking into account the base salaries of individuals with similar roles within Largo and in comparator groups.

 

Short-Term Cash Incentives

 

An annual cash incentive bonus is a variable component of executive compensation based on corporate and individual performance. This form of short-term incentive motivates executives to achieve objectives that support the realization of shareholder value and enables recognition of initiatives that improve our operational efficiency, health, safety and environmental record, attainment of financial objectives and execution of strategic initiatives.

 

Long- Term Share-Based and Option-Based Awards

 

The stock option (“Option”) and restricted share unit (“RSU”) components of the executive compensation package are provided to focus management’s attention on corporate performance over a period of time longer than one year in recognition of long term horizons for return on investments and strategic decisions. The level of Option and/or RSU awards given to each NEO is determined by his or her position, his or her potential future contributions to the Company and the number and terms of Option and RSU awards previously granted to the NEO. All equity based awards are reviewed by the Compensation Committee and the Board. The Compensation Committee and the Board determine a meaningful level of award for employees ranging from key employees to the CEO. The level of equity based awards is also influenced by the number of executives and key employees in the current year and the likelihood of grants in future years to executives and key employees since the total number of Common Shares available for issuance pursuant to Options and RSUs under the Company’s share compensation plan (the “Share Compensation Plan”), which was approved at the Company’s annual and special meeting of shareholders held on June 29, 2017 and replaces the Company’s previous Option plan (the “Stock Option Plan”) cannot exceed 10% of the Company’s issued Common Shares.

 

Other than the Share Compensation Plan, the Company does not have any other long term incentive plans pursuant to which cash or non-cash compensation is intended to serve as an incentive for performance over a period greater than one financial year (whereby performance is measured by reference to financial performance or the price of the Company’s securities).

 

A summary of the Share Compensation Plan is provided below under the heading “Equity Compensation Plan Information — Share Compensation Plan”.

 

25

 

Perquisites and Other Benefits

 

Perquisites and other benefits are intentionally limited and may include fitness memberships, comprehensive medical examinations, life and accident insurance, parking and housing and other subsidies and entitlements for executives who relocate at Largo’s request.

 

Risk of Compensation Policies and Practices

 

The Board and the Compensation Committee have not formally considered the implications of the risks associated with the Company’s compensation policies and practices. The discretionary nature of Options and RSU awards under the Share Compensation Plan are significant elements of the Company’s compensation plans and provide the Board and the Compensation Committee with the ability to reward historical performance and behaviour that the Board and the Compensation Committee consider to be aligned with the Company’s best interests.

 

The Board believes that the executive compensation program should not raise its overall risk profile. Accordingly, the Company’s executive compensation program includes safeguards designed to mitigate compensation risks. The following measures impose appropriate limits to avoid excessive or inappropriate risk taking or payments:

 

·           vesting requirements for Options and RSUs and Option terms of 5 years discourage excessive risk taking to achieve short-term goals;

 

·           recommendation of discretionary bonus payments to the Board by the Compensation Committee who are specifically tasked with determining allocation; and

 

·           implementation of trading blackouts prescribed by the Company’s Insider Trading Policy to limit the ability of officers of the Company to trade in securities of the Company.

 

Inappropriate and excessive risks by executives are also mitigated by review of the Board, at which, activity by the executives must be approved by the Board if such activity is outside previously Board-approved actions and/or as set out in a Board-approved budget. Given the current composition of the Company’s executive management team, the Board and the Compensation Committee are able to closely monitor and consider any risks which may be associated with the Company’s compensation practices. Risks may also be identified and mitigated through regular Board meetings during which financial and other information of the Company is reviewed, including executive compensation.

 

Purchase of Financial Instruments

 

The Company’s Insider Trading Policy prohibits an NEO or director from purchasing financial instruments, including prepaid variable forward contracts, equity swaps, collars or units of exchange funds, that are designed to hedge or offset a decrease in market value of equity securities granted as compensation or held, directly or indirectly, by the NEO or director.

 

Performance Graph

 

The following chart compares the total cumulative shareholder return on $100 invested in the Common Shares on December 31, 2014 with the cumulative total returns of the S&P/TSX Composite Index and the S&P/TSX Global Mining Index for the five most recently completed financial years.

 

26

 

Cumulative Shareholder Returns

 

 

 

 

Dec. 31, 2014

 

2015

 

2016

 

2017

 

2018

 

2019

 

Largo Resources Ltd.

 

100

 

17

 

28

 

76

 

161

 

56

 

S&P/TSX Composite Index

 

100

 

89

 

104

 

111

 

98

 

117

 

S&P/TSX Global Mining Index

 

100

 

72

 

102

 

117

 

109

 

133

 

 

As shown in the foregoing graph, the Company’s performance has largely trailed the performance of the S&P/TSX Composite Index and S&P/TSX Global Mining Index. In 2018 and part of 2019 Largo’s performance dramatically improved, in part, as a result of global vanadium market supply and demand imbalance, and the price-inelastic nature of vanadium. In 2019 the price of V2O5 decreased materially and from January 2020 to March 2020, the price of V2O5 has experienced volatility and any gains realized over the period have been tempered by fears of a global economic slowdown from the COVID-19 pandemic.

 

Market conditions have been volatile and have particularly impacted the junior mining sector. Market conditions and associated long term market uncertainties have an impact on officer compensation decisions; however, the Compensation Committee also considers the performance of the officers and the achievement of milestones.

 

Compensation Governance

 

The Compensation Committee is responsible for reviewing Largo’s overall compensation philosophy and reviewing and making recommendations to the Board with respect to all executive officer and director compensation matters and all incentive compensation and equity-based plans. The Board, as a whole, ultimately determines compensation for the directors, its CEO, CFO and other officers (including other NEOs) on the advice of the Compensation Committee. In performing its duties, the Compensation Committee has the authority to engage and compensate any outside advisor, including executive compensation consultants that it determines to be necessary or advisable to carry out its responsibilities.

 

27

 

Summary Compensation Table

 

The following table summarizes the compensation paid during the three financial years ended December 31, 2019, 2018 and 2017 in respect of the NEOs.

 

 

 

 

 

 

 

 

 

Option-

 

Non-equity incentive
plan compensation ($)

 

 

 

 

 

Name and
principal
position

 

Year Ended

 

Salary ($)(1)

 

Share-
based
awards ($)

 

based
awards
($)(2)

 

Annual
incentive
plans (3)

 

Long-term
incentive
plans

 

All other
compensation
($)(4)

 

Total
compensation
($)

 

Mark Smith

CEO and a Director

 

2019

 

428,154

 

1,200,554

 

Nil

 

600,000

 

Nil

 

NIl

 

2,228,708

 

 

2018

 

539,349

 

674,716

 

Nil

 

840,870

 

Nil

 

Nil

 

2,054,935

 

 

2017

 

526,437

 

Nil

 

Nil

 

Nil

 

Nil

 

Nil

 

526,437

 

Paulo Misk

President, CEO and a Director

 

2019

 

572,196

 

475,219

 

Nil

 

237,500

 

Nil

 

Nil

 

1,284,915

 

 

2018

 

445,638

 

227,014

 

Nil

 

382,525

 

Nil

 

Nil

 

1,055,177

 

 

2017

 

352,743

 

Nil

 

233,587

 

143,114

 

Nil

 

Nil

 

495,857

 

Ernest Cleave

CFO

 

2019

 

400,000

 

400,186

 

Nil

 

200,000

 

Nil

 

Nil

 

1,000,186

 

 

2018

 

359,167

 

212,377

 

Nil

 

365,000

 

Nil

 

Nil

 

936,544

 

 

2017

 

322,500

 

Nil

 

3,905

 

Nil

 

Nil

 

Nil

 

326,405

 

Luciano Chaves

VP Finance and Administration, Brazil

 

2019

 

373,737

 

255,103

 

Nil

 

170,000

 

Nil

 

Nil

 

798,854

 

 

2018

 

335,096

 

157,551

 

Nil

 

240,595

 

Nil

 

Nil

 

733,243

 

 

2017

 

326,412

 

Nil

 

7,038

 

94,470

 

Nil

 

Nil

 

427,920

 

David Harris

Corporate Controller

 

2019

 

225,000

 

225,103

 

Nil

 

90,000

 

Nil

 

Nil

 

540,103

 

 

2018

 

210,417

 

96,536

 

Nil

 

155,000

 

Nil

 

Nil

 

461,953

 

 

2017

 

195,375

 

Nil

 

26,812

 

Nil

 

Nil

 

Nil

 

195,375

 

Alvaro Resende

Director, Production

 

2019

 

205,590

 

109,315

 

Nil

 

76,435

 

Nil

 

Nil

 

391,340

 

 

2018

 

187,624

 

Nil

 

Nil

 

89,776

 

Nil

 

Nil

 

277,400

 

 

2017

 

178,453

 

Nil

 

Nil

 

44,105

 

Nil

 

Nil

 

222,558

 

 

Notes:

 

(1)         All compensation paid to all NEOs listed has been paid under executive employment agreements between the Company (or its operating subsidiary) and each such NEO as more particularly described under the heading “Statement of Executive Compensation — Employment Contracts and Termination and Change of Control Benefits” of this Circular.

 

(2)         The grant date fair value is a theoretical value determined using the Black Scholes pricing model for Options granted during the year. Under Black Scholes, the Options on the date of grant have no intrinsic value as the exercise price is the closing price of the Common Shares on the preceding date. Each NEO does not receive any value until each of the following occur: (i) the Options vest and (ii) and they are exercised. Generally, the Options will only be exercised where the exercise price is less than the trading price. Existing Options were priced under the provisions of the Share Compensation Plan which provide that such Options are to be priced at the weighted average trading price of the Common Shares on any exchange in Canada where the Common Shares are listed (including the TSX) for the last five trading days prior to the date of grant.

 

(3)         Compensation paid in the form of discretionary performance-based bonuses.

 

(4)         Any other benefits received by any NEO did not exceed the lesser of $50,000 and 10% of the total annual compensation for such NEO.

 

28

 

Outstanding Incentive Plan Awards

 

The following table provides information regarding those incentive plan awards for each NEO outstanding as of December 31, 2019 which have also not expired as of the date of this Circular.

 

 

 

Option-based Awards

 

Share-based Awards

 

Name

 

Number of
securities
underlying
unexercised
Options (#)

 

Option exercise
price ($)

 

Option
expiration
date

 

Value of
unexercised
in-the-
money
Options
($)(1)

 

Number of
shares or
units of
shares
that have
not vested
(#)

 

Market or
payout
value of
share-
based
awards
that have
not vested
($)(2)

 

Market or
payout valued
of vested
share-based
awards not
paid out or
distributed
($)

 

Paulo Misk

President, CEO and a Director

 

400,000

 

200,000 at $0.70
200,000 at $0.455

 

June 17, 2020
Sept. 16, 2021

 

58,000 107,000

 

221,644

 

219,428

 

N/A

 

Ernest Cleave

CFO

 

441,700

 

150,400 at $0.70
291,300 at $0.455

 

June 17, 2020
Sept. 16, 2021

 

43,616 155,846

 

192,751

 

190,823

 

N/A

 

Luciano Chaves

Vice President of Finance and Administration, Brazil

 

386,000

 

259,000 at $0.70
127,000 at $0.455

 

June 17, 2020
Sept. 16, 2021

 

75,110 67,945

 

129,255

 

127,962

 

N/A

 

David Harris

Corporate Controller

 

60,000

 

60,000 at $0.455

 

Sept. 16, 2021

 

32,100

 

101,824

 

100,806

 

N/A

 

Alvaro Resende
Director, Production

 

Nil

 

N/A

 

N/A

 

N/A

 

35,959

 

35,599

 

N/A

 

 

Notes:

 

(1)         Calculated using the closing price of Common Shares on the TSX on December 31, 2019 of $0.99 per Common Share, less the exercise price of the Options granted.

 

(2)         Calculated using the closing price of Common Shares on the TSX on December 31, 2019 of $0.99 per Common Share.

 

Incentive Plan Awards — Value Vested or Earned During the Year

 

The following table provides information regarding the value vested or earned of incentive plan awards for each NEO for the financial year ended December 31, 2019.

 

Name(2)

 

Option-based awards — Value
vested during the year ($)(1)

 

Share-based awards — Value
vested during the year ($)

 

Non-equity incentive plan
compensation — Value earned
during the year ($)

 

Paulo Misk

President, CEO and a Director

 

Nil

 

63,363

 

N/A

 

Ernest Cleave

CFO

 

Nil

 

59,278

 

N/A

 

Luciano Chaves

Vice President of Finance and Administration, Brazil

 

Nil

 

43,975

 

N/A

 

David Harris

Corporate Controller

 

Nil

 

26,945

 

N/A

 

 

29

 

Name(2)

 

Option-based awards — Value
vested during the year ($)(1)

 

Share-based awards — Value
vested during the year ($)

 

Non-equity incentive plan
compensation — Value earned
during the year ($)

 

Alvaro Resende
Director, Production

 

Nil

 

Nil

 

N/A

 

 

Notes:

 

(1)         Calculated using the closing price of Common Shares on the applicable vesting dates and the applicable exercise prices.

 

(2)         Mr. Mark Smith resigned as President, Chief Executive Officer and a Director of the Company effective September 8, 2019. Prior to Mr. Smith’s departure, Nil Options and Nil RSUs vested in 2019, and Nil Options and 783,215 RSUs vested concurrently with Mr. Smith’s departure on September 8, 2019.

 

Pension Plan Benefits

 

The Company has no pension plan, deferred compensation plan or other programs related to retirement funding.

 

Directors’ and Officers’ Insurance and Indemnification

 

The Company maintains insurance for the benefit of its directors and officers against liability in their respective capacities as directors and officers. The Company has purchased in respect of directors and officers an aggregate of $90,000,000 in coverage. The approximate amount of premiums paid by the Company in 2019 in respect of such insurance was $223,398.

 

Employment Contracts and Termination and Change of Control Benefits

 

The following describes the respective employment agreements entered into by the Company and the NEOs.

 

Mark Smith

 

Mr. Mark Smith resigned as President, Chief Executive Officer and director of the Company effective September 8, 2019. As part of his separation from the Company, Mr. Smith was paid $1,200,000, and 783,215 RSUs vested.

 

Paulo Misk

 

On September 8, 2019, the Company appointed Mr. Misk President, Chief Executive Officer and Director of the Company. Apart from changes to Mr. Misk’s compensation and title, there were no other changes to Mr. Misk’s employment agreement. Under this contract Mr. Misk is entitled to compensation of $600,000 per annum, subject to the Company’s internal policies, plus any such increments thereto, bonuses and grants of Options as the Board may from time to time determine. This agreement can be terminated at any time for cause without notice or payment in lieu of notice. In the event of termination without cause, Mr. Misk is entitled to the equivalent of two (2) times his effective annual salary in the form of a lump sum payment within 30 days of the termination date in addition to unpaid salary owed. Any unvested equity compensation issued pursuant to the Share Compensation Plan will also vest on such termination, subject only to limitations imposed by the TSX. In the event that there is a Change of Control of the Company (as defined below), and the Company within one year from the date of such Change of Control elects to have Mr. Misk’s appointment terminated then the Company shall pay Mr. Misk three (3) times his effective annual salary. Mr. Misk will also receive three (3) times his effective annual salary if on a Change of Control his duties are materially changed or there is a material reduction in Mr. Misk’s salary or material adverse change in work location or work conditions and Mr. Misk elects to terminate the agreement.

 

Ernest Cleave

 

The Company entered into an executive employment contract with Ernest Cleave effective July 10, 2015. Under this contract Mr. Cleave is entitled to compensation of $400,000 per annum, subject to review by the Board, plus any such increments thereto, bonuses and grants of Options under the Share Compensation Plan as the Board may from time to time determine. This agreement can be terminated at any time for cause without notice or payment in lieu of notice. In the event of termination without cause, Mr. Cleave is entitled to the equivalent of two (2) times his effective annual salary

 

30

 

in the form of a lump sum payment within 30 days of the termination date. Any unvested equity compensation issued pursuant to the Share Compensation Plan will also vest on such termination, subject only to limitations imposed by the TSX. In the event that there is a Change of Control of the Company (as defined below), and the Company within one year from the date of such Change of Control elects to have Mr. Cleave’s appointment terminated then the Company shall pay Mr. Cleave three (3) times his effective annual salary. Mr. Cleave will also receive three (3) times his effective annual salary if on a Change of Control his duties are materially changed or there is a material reduction in Mr. Cleave’s salary or material adverse change in work location or work conditions and Mr. Cleave elects to terminate the agreement.

 

Luciano Chaves

 

Vanádio de Maracás S.A., the Company’s operating subsidiary, being a corporation duly organized in Brazil, entered into an executive employment contract with Luciano Chaves effective November 14, 2017, as amended as of August 1, 2018. Under this contract Mr. Chaves is entitled to compensation of $340,000 per annum, subject to the Company’s internal policies, plus any such increments thereto, bonuses and grants of Options as the Board may from time to time determine. This agreement can be terminated at any time for cause without notice or payment in lieu of notice. In the event of termination without cause, Mr. Chaves is entitled to the equivalent of two (2) times his effective annual salary in the form of a lump sum payment within 30 days of the termination date in addition to unpaid salary owed. Any unvested equity compensation issued pursuant to the Share Compensation Plan will also vest on such termination, subject only to limitations imposed by the TSX. In the event that there is a Change of Control of the Company (as defined below), and the Company within one year from the date of such Change of Control elects to have Mr. Chaves’ appointment terminated then the Company shall pay Mr. Chaves three (3) times his effective annual salary. Mr. Chaves will also receive three (3) times his effective annual salary if on a Change of Control his duties are materially changed or there is a material reduction in Mr. Chaves’ salary or material adverse change in work location or work conditions and Mr. Chaves elects to terminate the agreement.

 

David Harris

 

The Company entered into an executive employment contract with David Harris effective July 6, 2015. Under this contract Mr. Harris is entitled to compensation of $225,000 per annum, subject to review by the Board, plus any such increments thereto, bonuses and grants of Options under the Share Compensation Plan as the Board may from time to time determine. This agreement can be terminated at any time for cause without notice or payment in lieu of notice. In the event of termination without cause, Mr. Harris is entitled to the equivalent of two (2) times his effective annual salary in the form of a lump sum payment within 30 days of the termination date. Any unvested equity compensation issued pursuant to the Share Compensation Plan will also vest on such termination, subject only to limitations imposed by the TSX. In the event that there is a Change of Control of the Company (as defined below), and the Company within one year from the date of such Change of Control elects to have Mr. Harris’ appointment terminated then the Company shall pay Mr. Harris three (3) times his effective annual salary. Mr. Harris will also receive three (3) times his effective annual salary if on a Change of Control his duties are materially changed or there is a material reduction in Mr. Harris’ salary or material adverse change in work location or work conditions and Mr. Harris elects to terminate the agreement.

 

Alvaro Resende

 

Vanádio de Maracás S.A., the Company’s operating subsidiary, being a corporation duly organized in Brazil, entered into an executive employment contract with Alvaro Resende effective August 08, 2016, as amended as of September 1, 2018. Under this contract Mr. Resende is entitled to compensation of $238,560 per annum, subject to the Company’s internal policies, plus any such increments thereto, bonuses and grants of Options as the Board may from time to time determine. This agreement can be terminated at any time for cause without notice or payment in lieu of notice. In the event of termination without cause, Mr. Resende is entitled to the equivalent of one (1) time his effective monthly salary + (0.4) monthly salary per year worked in the form of a lump sum payment within 10 days of the termination date in addition to unpaid salary owed

 

As used herein, “Change of Control” shall be defined as the acquisition by any person (person being defined as an individual, a corporation, a partnership, an unincorporated association or organization, a trust, a government or department or agency thereof and the heirs, executors, administrators or other legal representatives of an individual and

 

31

 

an associate or affiliate of any thereof as such terms are defined in the Business Corporations Act (Ontario) of: (1) shares or rights or options to acquire shares of the Company or securities which are convertible into shares of the Company or any combination thereof such that after the completion of such acquisition such persons would be entitled to exercise 50% or more of the votes entitled to be cast at a meeting of the shareholders of the Company; (2) shares or rights or options to acquire shares, or their equivalent, of any material subsidiary of the Company or securities which are convertible into shares of the material subsidiary or any combination thereof such that after the completion of such acquisition such persons would be entitled to exercise 50% or more of the votes entitled to be cast at a meeting of the shareholders of the material subsidiary; or (3) more than 50% of the material assets of the Company, including the acquisition of more than 50% of the material assets of any material subsidiary of the Company.

 

Other Arrangements

 

Other than as disclosed above, the Company has no compensatory plan or arrangement in respect of compensation received or that may be received by the NEOs in the Company’s most recently completed or current fiscal year to compensate such executive officers in the event of the termination of employment (resignation, retirement, change of control) or in the event of a change in responsibilities following a change of control.

 

Change of Control Payment Chart

 

The estimated incremental payments, payables and benefits that would have been paid to the NEOs pursuant to the above noted agreements (those that have not resigned or been terminated as of the date of this Circular) in the event of termination without cause or after a Change of Control on December 31, 2019 is detailed below:

 

Named Executive Officer

 

Termination Without Cause

 

Termination on a Change of Control

 

Paulo Misk

 

 

 

 

 

Salary

 

$

1,200,000

 

$

1,800,000

 

RSUs(1)

 

$

475,219

 

$

475,219

 

Bonus

 

0

 

0

 

Total

 

$

1,675,219

 

$

2,275,219

 

Ernest Cleave

 

 

 

 

 

Salary

 

$

800,000

 

$

1,200,000

 

RSUs(1)

 

$

400,186

 

$

400,186

 

Bonus

 

0

 

0

 

Total

 

$

1,200,186

 

$

1,600,186

 

Luciano Chaves

 

 

 

 

 

Salary

 

$

747,474

 

$

1,121,211

 

RSUs(1)

 

$

255,117

 

$

255,117

 

Bonus

 

0

 

0

 

Total

 

$

1,002,591

 

$

1,376,328

 

David Harris

 

 

 

 

 

Salary

 

$

450,000

 

$

675,000

 

RSUs(1)

 

$

225,103

 

$

225,103

 

Bonus

 

0

 

0

 

Total

 

$

675,103

 

$

900,103

 

Alvaro Resende

 

 

 

 

 

Salary

 

$

18,889

 

Nil

 

RSUs(1)

 

$

109,315

 

$

109,315

 

Bonus

 

0

 

0

 

Total

 

$

314,905

 

$

109,315

 

 

32

 

Notes:

 

(1)               Value of the RSUs that would vest on a Change of Control.

 

Compensation of Directors

 

Compensation of directors in the financial period ended December 31, 2019 was determined on a case-by-case basis with reference to the role that each director provides to the Company. The following information details compensation paid in the recently completed financial year.

 

In addition, directors are entitled to participate in the Share Compensation Plan, which is designed to give each Option holder an interest in preserving and maximizing shareholder value in the longer term. Individual grants are determined by an assessment of an individual’s current and expected future performance, level of responsibilities and the importance of his/her position and contribution to the Company.

 

Executive officers who also act as directors of the Company do not receive any additional compensation for services rendered in their capacity as directors.

 

During the financial year ended December 31, 2019, directors were granted the fees, Options and bonuses in their capacity as directors of the Company as is set out in the table below (for information Messers Smith and Misk please refer to the section entitled “Summary Compensation Table” above).

 

Director Compensation Table

 

The following table provides information regarding compensation paid to the Company’s directors for the financial year ended December 31, 2019, other than Messers Smith and Misk whose compensation was included above under the section entitled “Summary Compensation Table”.

 

Name

 

Fees earned
($)(1)

 

Share-
based
awards
($)

 

Option-
based
awards
($)(2)

 

Non-equity 
incentive plan
compensation ($)

 

All other
compensation ($)

 

Total ($)

 

Alberto Arias(3)

 

81,875

 

N/A

 

114,500

 

N/A

 

N/A

 

196,375

 

David Brace

 

57,500

 

N/A

 

114,500

 

N/A

 

N/A

 

172,000

 

Jonathan Lee(3)

 

29,611

 

N/A

 

N/A

 

N/A

 

N/A

 

29,611

 

Daniel Tellechea

 

78,125

 

N/A

 

114,500

 

N/A

 

N/A

 

192,625

 

Koko Yamamoto

 

70,625

 

N/A

 

160,300

 

N/A

 

N/A

 

230,925

 

TOTALS

 

317,736

 

N/A

 

503,800

 

N/A

 

N/A

 

821,536

 

 

Notes:

 

(1)         The Compensation Committee of the Company has set fees to be payable to non-executive directors (all directors other than Mr. Misk) at $35,000 per annum. In addition, it was determined that the chairs of Board committees be paid $15,000 per annum and that committee members be paid $7,500 per annum.

 

(2)         The values included in the chart relate to vesting expense recorded in 2019.

 

(3)         Director fees were paid to Arias Resource Capital Management L.P.

 

Outstanding Incentive Plan Awards

 

The following table provides information regarding the incentive plan awards for each non-executive director outstanding as of December 31, 2019. Information regarding outstanding share-based awards and option-based awards received by Messers Smith and Misk for their service as executives is disclosed under the section above entitled “Summary Compensation Table”.

 

33

 

 

 

Option-based Awards

 

Share-based Awards

 

Name

 

Number of
securities
underlying
unexercised
Options (#)

 

Option
exercise
price ($)

 

Option
expiration date

 

Value of
unexercised
in-the-money
Options ($)(1)

 

Number of
shares or
units of
shares that
have not
vested (#)

 

Market or
payout value
of share-
based
awards that
have not
vested ($)

 

Market or
payout valued
of vested share-
based awards
not paid out or
distributed ($)

 

Alberto Arias

 

98,000
200,000
40,000
50,000

 

0.70
0.455
2.40
3.04

 

June 17, 2020
Sept. 16, 2021
Aug. 16, 2023
Jan. 14, 2024

 

28,420
107,000
—
—

 

N/A

 

N/A

 

N/A

 

David Brace

 

98,000
185,000
40,000
50,000

 

0.70
0.455
2.40
3.04

 

June 17, 2020
Sept. 16, 2021
Aug. 16, 2023
Jan. 14, 2024

 

28,420
107,000
—
—

 

N/A

 

N/A

 

N/A

 

Jonathan Lee

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

Daniel Tellechea

 

200,000
40,000
50,000

 

0.455
2.40
3.04

 

Sept. 16, 2021
Aug. 16, 2023
Jan. 14, 2024

 

107,000
—
—

 

N/A

 

N/A

 

N/A

 

Koko Yamamoto

 

40,000
70,000

 

2.40
3.04

 

Aug. 16, 2023
Jan. 14, 2024

 

—
—

 

N/A

 

N/A

 

N/A

 

 

Notes:

 

(1)         Calculated using the closing price of Common Shares on the TSX on December 31, 2019 of $0.99 per Common Share, less the exercise price of the Options granted.

 

Incentive Plan Awards — Value Vested or Earned During the Year

 

The following table provides information regarding the value vested or earned of incentive plan awards for each non-executive director for the financial year ended December 31, 2019.

 

Name

 

Option-based awards — Value
vested during the year ($)(1)

 

Share-based awards — Value
vested during the year ($)

 

Non-equity incentive plan
compensation — Value earned
during the year ($)

 

Alberto Arias

 

114,500

 

N/A

 

N/A

 

David Brace

 

114,500

 

N/A

 

N/A

 

Jonathan Lee

 

Nil

 

N/A

 

N/A

 

Daniel Tellechea

 

114,500

 

N/A

 

N/A

 

Koko Yamamoto

 

160,300

 

N/A

 

N/A

 

 

Notes:

 

(1)         Value, if any, of any Options which vested during 2019 was calculated by multiplying the number of vested Options by the difference between the market price at the time of vesting and the exercise price.

 

34

 

Other Arrangements

 

Other than as disclosed elsewhere in this Circular, none of the directors of the Company were compensated by the Company during the financial year ended December 31, 2018 pursuant to any other arrangement or in lieu of any standard compensation arrangement.

 

EQUITY COMPENSATION PLAN INFORMATION

 

Securities Authorized for Issuance under Equity Compensation Plans

 

The table below sets out the outstanding Options and RSUs under the Share Compensation Plan (including those issued pursuant to the Stock Option Plan), being the Company’s only compensation plan under which Common Shares are authorized for issuance, as of December 31, 2019.

 

Plan Category

 

Number of securities to
be issued upon exercise
of outstanding Options
and RSUs

 

Weighted-average
exercise price of
outstanding Options,
and RSUs

 

Number of securities remaining
available for future issuance under
equity compensation plans (excluding
securities reflected in the first column)

 

Equity compensation plans approved by security holders

 

3,956,087

 

$

0.96

 

51,497,242

 

Equity compensation plans not approved by security holders

 

N/A

 

N/A

 

N/A

 

TOTAL

 

3,956,087

 

$

0.96

 

51,497,242

 

 

Stock Option Plan

 

No new stock options may be granted under the Stock Option Plan. The Stock Option Plan exists only for the purposes of governing the terms of all outstanding stock options that were issued under the Stock Option Plan prior to the adoption of the Company’s Share Compensation Plan (described below) at the annual and special meeting of shareholders held on June 29, 2017. The Stock Option Plan was last ratified and approved by the shareholders of the Company at its annual meeting on June 29, 2016. The total number of outstanding stock options issued (but not exercised) under the Stock Option Plan count towards the maximum number of Options and RSUs issuable under the Share Compensation Plan. Details of the Share Compensation Plan are provided below under “Share Compensation Plan”.

 

The Stock Option Plan was a “rolling” stock option plan pursuant to which the Company was permitted to grant up to that number of stock options that was equal to 10% of the number of issued and outstanding Common Shares at the time of the stock option grant, from time to time. As of the Record Date, there were an aggregate of 2,543,700 stock options outstanding under the Stock Option Plan, which represents approximately 0.45% of the outstanding Common Shares.

 

Stock option grants were only permitted to employees, officers and certain consultants of the Company and designated affiliates. The terms and conditions of each stock option granted under the Stock Option Plan were determined by the Board. Stock options were priced in the context of the market and in compliance with applicable securities laws and stock exchange guidelines. The exercise prices of stock options issued under the Stock Option Plan were equal to or greater than the market price of the underlying Common Shares at the time of grant. Vesting terms and term to expiry were determined at the discretion of the Board, provided that no stock option would be outstanding for a period greater than five years.

 

The Stock Option Plan’s amendment provision provided flexibility to the Board to make certain changes to the Stock Option Plan without shareholder approval. Such amendments included, making appropriate adjustments to outstanding stock options in the event of certain corporate transactions, the addition of provisions requiring forfeiture of stock options in certain circumstances, specifying practices with respect to applicable tax withholdings and changes to enhance clarity or correct ambiguous provisions.

 

35

 

The following amendments to the Stock Option Plan required shareholder approval: (a) increasing the maximum number of Common Shares which may be issued under the Stock Option Plan; (b) materially modifying the requirements as to eligibility for participation in the Stock Option Plan; (c) materially increasing the benefits accruing to participants under the Stock Option Plan and (d) amending the Stock Option Plan amendment provision. These amendments included amending stock options issued under the Stock Option Plan, including with respect to the stock option period, subscription price and method of determining the subscription price and assignability of Options and any extension of eligibility to participate in the Stock Option Plan to non-executive directors of the Company, including any amendments which may increase the limits imposed on non-executive directors’ participation in the Stock Option Plan and extending the expiration date of any stock option.

 

Stock options are generally cancellable 90 days following the termination of a stock optionholder’s involvement with the Company. Stock options granted under the Stock Option Plan are not assignable. The Company will not provide financial assistance to any stock optionholder to facilitate the exercise of stock options under the Stock Option Plan.

 

The forgoing is a summary of the Stock Option Plan and is qualified in its entirety to the full text of the Stock Option Plan available on the Company’s profile on SEDAR at www.sedar.com.

 

Share Compensation Plan

 

Since the adoption of the Share Compensation Plan at the annual and special meeting of shareholders on June 29, 2017, the Share Compensation Plan governs all new grants of RSUs and Options. The total number of outstanding stock options issued (but not exercised) under the Stock Option Plan count towards the maximum number of Options and RSUs issuable under the Share Compensation Plan. A description of the Stock Option Plan is provided above under “Stock Option Plan”.

 

The Share Compensation Plan is a 10% “rolling” plan pursuant to which the number of Common Shares which may be issuable pursuant to RSUs and Options granted under the Share Compensation Plan, together with stock options previously granted under the Stock Option Plan and any other Common Shares issuable pursuant to any other security based compensation arrangements of the Company or its subsidiaries, is a maximum of 10% of the issued and outstanding Common Shares at the time of the grant.

 

The Share Compensation Plan provides participants (each, an “SCP Participant”), who may include participants who are citizens or residents of the United States (each, a “US-SCP Participant”), with the opportunity, through RSUs and Options, to acquire an ownership interest in the Company. The RSUs will rise and fall in value based on the trading price of the Common Shares. Unlike the Options, the RSUs will not require the payment of any monetary consideration to the Company. Instead, each RSU represents a right to receive one Common Share following the attainment of vesting criteria determined by the Board at the time of the award. See “Share Compensation Plan - Restricted Share Units — Vesting and Deferral Provisions” below. The Options, on the other hand, are rights to acquire Common Shares upon payment of monetary consideration (i.e., the exercise price), subject also to vesting criteria determined at the time of the grant. See “Share Compensation Plan - Options — Vesting Provisions” below.

 

Purpose of the Share Compensation Plan

 

The Board utilizes the Share Compensation Plan in order to advance the interests of the Company and its subsidiaries, and its shareholders by: (a) ensuring that the interests of SCP Participants are aligned with the success of the Company and its subsidiaries; (b) encouraging stock ownership by such persons; and (c) providing compensation opportunities to attract, retain and motivate such persons.

 

SCP Participants include officers or employees of the Company or any officer or employee of any subsidiary of the Company and, with respect to the grant of Options, any non-employee director of the Company or any non-employee director of any subsidiary of the Company, and any consultant (defined under the Share Compensation Plan as a consultant that: (i) is an individual that provides bona fide services to the Company pursuant to a written contract for services with the Company and such services are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company’s securities; or (ii) otherwise satisfies the requirements to participate in an “employee benefit plan” as defined in Rule 405 under the United States

 

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Securities Act of 1933, as amended (the “1933 Act”). Non-employee directors of the Company are not eligible to participate in the Share Compensation Plan in respect of RSUs. Under the Share Compensation Plan, non-employee directors of the Company continue to be eligible to participate in respect of Options; however, only on a limited basis. See “Restrictions on the Award of RSUs and Grant of Options” below. Under the Stock Option Plan, directors of the Company had technically been eligible to participate on a discretionary basis without any limits on participation.

 

Administration of the Share Compensation Plan

 

The Share Compensation Plan is administered by the Board or such other persons as may be designated by the Board (the “SCP Administrators”) based on the recommendation of the Compensation Committee. The SCP Administrators determine the eligibility of persons to participate in the Share Compensation Plan, when RSUs and Options will be awarded or granted, the number of RSUs and Options to be awarded or granted, the vesting criteria for each award of RSUs and grant of Options and all other terms and conditions of each award and grant, in each case in accordance with applicable securities laws and stock exchange requirements.

 

Number of Common Shares Available for Issuance under the Share Compensation Plan

 

The number of Common Shares that are available for issuance upon the vesting of RSUs awarded and Options granted under the Share Compensation Plan is limited to 10% of the issued and outstanding Common Shares at the time of any grant, less Common Shares issuable pursuant to previously issued options under the Stock Option Plan and any less Common Shares issuable pursuant to any other security based compensation arrangements of the Company or its subsidiaries.

 

As of the date of this Circular, the Company has 562,975,760 Common Shares issued and outstanding and the aggregate number of Common Shares that may be issuable pursuant to outstanding RSUs (2,404,455) and options (6,775,162) (under the Share Compensation Plan (and the Stock Option Plan) is 9,179,617 Common Shares (being approximately 1.63% of the issued and outstanding Common Shares and approximately 16.31% of the total Common Shares that may be issuable under the Share Compensation Plan). The outstanding RSUs represent approximately 0.43% of the issued and outstanding Common Shares and approximately 4.27% of the total Common Shares that may be issuable under the Share Compensation Plan. The outstanding options represent approximately 1.20% of the issued and outstanding Common Shares and approximately 12.03% of the total Common Shares that may be issuable under the Share Compensation Plan.

 

Restrictions on the Award of RSUs and Grant of Options

 

Certain restrictions on awards of RSUs and grants of Options apply as follows:

 

(a)         the total number of Common Shares reserved and available for grant and issuance pursuant to the Share Compensation Plan (together with those Common Shares issuable pursuant to any other security-based compensation arrangements of the Company or its subsidiaries) cannot exceed 10% of the Common Shares then issued and outstanding (together with those Common Shares issuable pursuant to any other security-based compensation arrangements of the Company or its subsidiaries);

 

(b)         the number of Common Shares issuable under the Share Compensation Plan to any one SCP Participant (together with those Common Shares issuable pursuant to any other security-based compensation arrangements of the Company or its subsidiaries) cannot exceed 5% of the Common Shares then issued and outstanding;

 

(c)          the number of Common Shares issuable to insiders under the Share Compensation Plan (together with those Common Shares issuable pursuant to any other security-based compensation arrangements of the Company or its subsidiaries) cannot exceed 10% of the Common Shares then issued and outstanding;

 

(d)         the number of Common Shares issued to insiders under the Share Compensation Plan within a one-year period (together with those Common Shares that are issued pursuant to any other security-based compensation arrangements of the Company or its subsidiaries) cannot exceed 10% of the Common Shares then issued and outstanding; and

 

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(e)          the number of Common Shares reserved for issuance to SCP Participants who are non-employee directors pursuant to Options under the Share Compensation Plan shall be limited to the lesser of:

 

(i)                                     1% of the Common Shares then issued and outstanding; and

 

(ii)                                  $1,000,000 in total value of grants that each director receives over the life of the Share Compensation Plan from the effective date thereof or an annual grant value of $100,000 per director, in both cases based on a valuation determined using the Black-Scholes formula or any other formula which is widely accepted by the business community as a method for the valuation of options.

 

Restricted Share Units

 

The total number of RSUs that may be awarded shall not exceed 2.5% of the issued and outstanding Common Shares from time to time.

 

Mechanics for RSUs

 

RSUs awarded to SCP Participants under the Share Compensation Plan are credited to an account that is established on their behalf and maintained in accordance with the Share Compensation Plan. Each RSU awarded will conditionally entitle the holder thereof to receive one Common Share upon achievement of the vesting criteria. RSUs awarded under the Share Compensation Plan will be redeemed for Common Shares issued from treasury once the vesting criteria established by the SCP Administrators at the time of the award have been satisfied. However, the Company will continue to retain the flexibility through the amendment provisions in the Share Compensation Plan to satisfy its obligation to issue Common Shares by purchasing Common Shares in the open market or by making a lump sum cash payment of equivalent value.

 

Vesting and Deferral Provisions

 

The Share Compensation Plan provides that: (i) at the time of the award of RSUs, the SCP Administrators will determine the vesting criteria applicable to the awarded RSUs and the Deferred Payment Date; (ii) vesting of RSUs may include criteria such as performance vesting; (iii) each RSU shall be subject to vesting in accordance with the terms set out in an agreement evidencing the award of the RSU attached as Exhibit A to the Share Compensation Plan (or in such form as the SCP Administrators may approve from time to time) (each an “RSU Agreement”); and (iv) all vesting and issuances or payments in respect of an RSU shall be completed no later than December 15 of the third calendar year commencing after the award date for such RSU.

 

RSUs may be awarded with both time-based vesting provisions as a component of the Company’s annual incentive compensation program, and performance-based vesting provisions as a component of the Company’s long-term incentive compensation program.

 

Under the Share Compensation Plan, should the date of vesting of an RSU fall within a blackout period or within nine business days following the expiration of a blackout period, the date of vesting will be automatically extended to the tenth business day after the end of the blackout period.

 

The Share Compensation Plan is amended to enable Participants (as defined in the plan) to elect to defer the receipt of all or any part of their entitlement to Shares upon the grant and vesting of an RSU, as applicable, until a date following the vesting of such RSU as may be determined by the Administrators (as defined in the plan), or as otherwise set out in the plan (such date being the Deferred Payment Date). Participants who elect to set a Deferred Payment Date shall be required to provide prior notice to the Company of such date and, subject to certain restrictions, may change a Deferred Payment Date by providing prior notice to the Company.

 

The Share Compensation Plan is also amended to enable a Participant to elect, subject to the consent of the Administrators, to redeem such portion (and only such portion) of its vested RSUs for a cash amount equal to the Withholding Obligations (as defined in the plan) associated with the aggregate number of RSUs to be redeemed.

 

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Termination, Retirement and Other Cessation of Employment in connection with RSUs

 

A person participating in the Share Compensation Plan will cease to be eligible to participate in the following circumstances: (i) receipt of any notice of termination of employment or service (whether voluntary or involuntary and whether with or without cause); (ii) retirement; and (iii) any cessation of employment or service for any reason whatsoever, including disability and death (an “Event of Termination”). In such circumstances, any and all Common Shares corresponding to any vested RSUs will be issued (and with respect to each RSU of a US-SCP Participant, such RSU will be settled and shares issued as soon as practicable following the date of vesting of such RSU as set forth in the applicable RSU Agreement, but in all cases within 60 days following such date of vesting); and unless otherwise determined by the SCP Administrators in their discretion, any unvested RSUs will automatically be forfeited and cancelled (and with respect to any RSU of a US-SCP Participant, if the SCP Administrators determine, in their discretion, to waive vesting conditions applicable to an RSU that is unvested at the time of an Event of Termination, such RSU shall not be forfeited or cancelled, but instead will be deemed to be vested and settled and shares delivered following the date of vesting of such Restricted Share Unit as set forth in the applicable RSU Agreement.) Notwithstanding the above, if a person retires in accordance with the Company’s retirement policy at such time, any unvested performance-based RSUs will not be forfeited or cancelled and instead shall be eligible to become vested in accordance with the vesting conditions set forth in the applicable RSU Agreement after such retirement (as if retirement had not occurred), but only if the performance vesting criteria, if any, have been met on the applicable date. For greater certainty, if a person is terminated for just cause, all unvested RSUs will be forfeited and cancelled.

 

Options

 

The total number of Common Shares that may be issuable on exercise of Options shall not exceed 7.5% of the number of issued and outstanding Common Shares from time to time.

 

Mechanics for Options

 

Options granted under the Share Compensation Plan will be exercisable for Common Shares issued from treasury once the vesting criteria established by the SCP Administrators at the time of the grant have been satisfied. However, the Company will continue to retain the flexibility through the amendment provisions in the Share Compensation Plan to satisfy its obligation to issue Common Shares by making a lump sum cash payment of equivalent value (i.e., pursuant to a cashless exercise), provided there is a full deduction of the number of underlying Common Shares from the Share Compensation Plan’s reserve.

 

Vesting Provisions

 

The Share Compensation Plan provides that unless otherwise determined by the SCP Administrators, Options shall vest and become exercisable in respect of 331/3% of the Common Shares subject to such Options on the first day after each of the first three anniversaries of the grant date of such Options.

 

Termination, Retirement and Other Cessation of Employment in connection with Options

 

A person participating in the Share Compensation Plan will cease to be eligible to participate where there is an Event of Termination. In such circumstances, unless otherwise determined by the SCP Administrators in their discretion, any unvested Options will be automatically cancelled, terminated and not available for exercise and any vested Options may be exercised only before the earlier of: (i) the expiry of the Option; and (ii) six months after the date of the Event of Termination. If a person is terminated for just cause, all Options will be (whether or not then exercisable) automatically cancelled.

 

Other Terms

 

Cashless exercise of Options shall only be available to an SCP Participant who was granted and is exercising such Options outside the United States in compliance with Regulation S under the 1933 Act at a time when the Common Shares are listed and posted for trading on a stock exchange or market in Canada, the SCP Participant intends to immediately sell

 

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the Common Shares issuable upon exercise of such Options in Canada and the proceeds of sale will be sufficient to satisfy the exercise price of the Options. If an eligible SCP Participant elects to exercise the Options through cashless exercise and complies with any relevant protocols approved by the Administrators, a sufficient number of the Common Shares issued upon exercise of the Options will be sold in Canada by a designated broker on behalf of the SCP Participant to satisfy the exercise price of the Options, the exercise price of the Options will be delivered to the Company and the SCP Participant will receive only the remaining unsold Common Shares from the exercise of the Options and the net proceeds of the sale after deducting the exercise price of the Options, applicable taxes and any applicable fees and commissions, all as determined by the Administrators from time to time. The Company may not deliver the Common Shares issuable upon a cashless exercise of Options until receipt of the exercise price therefor, whether by a designated broker selling the Common Shares issuable upon exercise of such Options through a short position or such other method determined by the Administrators in compliance with applicable laws.

 

The SCP Administrators will determine the exercise price and term/expiration date of each Option, provided that the exercise price in respect of that Option shall not be less than the “Fair Market Value” of a Common Share (defined in the Share Compensation Plan as the weighted average trading price of a Common Share on any exchange in Canada for the last five trading days or, if the Common Shares are not listed for trading on an exchange, the fair market value per Common Share on such day will be determined by the SCP Administrators with reference to such factors or such information as the SCP Administrators in their discretion deem appropriate) on the date the Option is granted. The exercise price of Options granted to US-SCP Participants shall not be less than the greater of (i) the Fair Market Value of a Common Share on the grant date and (ii) the closing price of the Common Shares on any exchange in Canada where Common Shares are listed on the last trading day prior to the date the Option is granted.

 

No Option shall be exercisable after ten years from the date the Option is granted. Under the Share Compensation Plan, should the term of an Option expire on a date that falls within a blackout period or within nine business days following the expiration of a blackout period, such expiration date will be automatically extended to the tenth business day after the end of the blackout period.

 

The Share Compensation Plan provides that any unvested Options will vest at such time as determined by the SCP Administrators such that SCP Participants will be able to participate in a Change of Control, as defined in the Share Compensation Plan, including by surrendering such Options to the Company or a third party or exchanging such Options, for consideration in the form of cash or other securities. Additionally, any exchange, substitution or amendment of Options of US-SCP Participants will occur only to the extent and in a manner that is permitted under the Code and the 1933 Act.

 

Unless otherwise determined by the Board, in the event of a Change of Control, any surviving or acquiring corporation shall assume any Option outstanding under the Share Compensation Plan on substantially the same economic terms and conditions or substitute or replace similar options for those Options outstanding under the Share Compensation Plan on substantially the same economic terms and conditions.

 

Transferability

 

RSUs awarded and Options granted under the Share Compensation Plan or any rights of an SCP Participant cannot be transferred, assigned, charged, pledged or hypothecated, or otherwise alienated, whether by operation of law or otherwise.

 

Reorganization and Change of Control Adjustments

 

In the event of any declaration by the Company of any stock dividend payable in securities (other than a dividend which may be paid in cash or in securities at the option of the holder of Common Shares), or any subdivision or consolidation of Common Shares, reclassification or conversion of the Common Shares, or any combination or exchange of securities, merger, consolidation, recapitalization, amalgamation, plan of arrangement, reorganization, spin off involving the Company, distribution (other than normal course cash dividends) of Company assets to holders of Common Shares, or any other corporate transaction or event involving the Company or the Common Shares, the SCP Administrators may make such changes or adjustments, if any, as they consider fair or equitable, to reflect such change or event including

 

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adjusting the number of Options and RSUs outstanding under the Share Compensation Plan, the type and number of securities or other property to be received upon exercise or redemption thereof, and the exercise price of Options outstanding under the Share Compensation Plan, provided that the value of any Option or RSU immediately after such an adjustment shall not exceed the value of such Option or RSU prior thereto. Changes or adjustments to Options and RSUs of US-SCP Participants will be in accordance with the requirements of the Code and will comply with the vesting provisions of the Share Compensation Plan. The SCP Administrators will adopt rules, regulations, policies, guidelines or conditions with respect to the exercise of the power or authority to make changes or adjustments pursuant to reorganizations.

 

If there is a Change of Control transaction, the SCP Administrators may, in their sole discretion, determine that any or all unvested RSUs and any or all Options shall vest or become exercisable, as applicable, at such time and in such manner as determined by the SCP Administrators in their sole discretion such that SCP Participants will be able to participate in the Change of Control transaction, including, at the election of the holder thereof, by surrendering such RSUs and Options to the Company or a third party or exchanging such RSUs or Options, for consideration in the form of cash and/or securities, to be determined by the SCP Administrators, subject, in the case of a US-SCP Participant, to the applicable requirements of Section 409A of the Code.

 

Amendment Provisions in the Share Compensation Plan

 

The Board may amend the Share Compensation Plan or any RSU or Option at any time without the consent of any SCP Participant provided that such amendment will:

 

(a)         not adversely alter or impair any RSU previously awarded or any Option previously granted, except as permitted by the adjustment provisions of the Share Compensation Plan and, with respect to RSUs and Options of US-SCP Participants, such amendment will not create adverse tax consequences;

 

(b)         be subject to any regulatory approvals including, where required, the approval of the TSX and the NYSE American; and

 

(c)          be subject to shareholder approval, where required, by the requirements of the TSX, provided that shareholder approval shall not be required for the following amendments:

 

(i)                                     amendments of a “housekeeping nature”, including any amendment to the Share Compensation Plan or a RSU or Option that is necessary to comply with applicable laws, tax or accounting provisions or the requirements of any regulatory authority or stock exchange and any amendment to the Share Compensation Plan or an RSU or Option to correct or rectify any ambiguity, defective provision, error or omission therein, including any amendment to any definitions therein;

 

(ii)                                  amendments that are necessary or desirable for RSUs or Options to qualify for favourable treatment under any applicable tax law;

 

(iii)                               a change to the vesting provisions of any RSU or any Option (including any alteration, extension or acceleration thereof);

 

(iv)                              a change to the termination provisions of any Option or RSU (e.g., relating to termination of employment, resignation, retirement or death) that does not entail an extension beyond the original expiration date (as such date may be extended by virtue of a blackout period);

 

(v)                                 the introduction of features to the Share Compensation Plan that would permit the Company to retain a broker and make payments for the benefit of SCP Participants to such broker who would purchase Common Shares in the open market for such persons, instead of issuing Common Shares from treasury upon the vesting of the RSUs;

 

(vi)                              the introduction of features to the Share Compensation Plan that would permit the Company to make lump sum cash payments to SCP Participants, instead of issuing Common Shares from treasury upon the vesting of the RSUs;

 

(vii)                           the introduction of a cashless exercise feature (payable in cash or securities), which would provide for up to the full deduction of the number of underlying securities from the Share Compensation Plan reserve; and

 

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(viii)                        change the application of Reorganization Adjustments provisions in section 6.3 or the Change of Control provisions in section 6.2).

 

For greater certainty, shareholder approval will be required in circumstances where an amendment to the Share Compensation Plan would:

 

(a)         change from a fixed maximum percentage of issued and outstanding Common Shares to a fixed maximum number of Common Shares;

 

(b)         increase the limits referred to above under “Restrictions on the Award of RSUs and Grant of Options”;

 

(c)          permit the award of RSUs to non-employee directors of the Company or a change in the limitations on grants of Options to non-employee directors;

 

(d)         permit RSUs or Options to be transferable or assignable other than for normal estate settlement purposes;

 

(e)          reduce the exercise price of any Option (including any cancellation of an Option for the purpose of reissuance of a new Option at a lower exercise price to the same person);

 

(f)           extend the term of any Option beyond the original term (except if such period is being extend by virtue of a blackout period); or

 

(g)          amend the amendment provisions in Section 6.4 of the Share Compensation Plan.

 

INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON

 

None of our directors or executive officers are aware of any material interest, direct or indirect, by way of beneficial ownership of securities or otherwise of any person who: (i) has been a director or executive officer of Largo at any time since January 1, 2019; (ii) is a proposed nominee for election as a director of Largo; or (iii) is an associate or affiliate of any person described in (i) or (ii), in any of the matters to be acted upon at the Meeting other than the election of directors or the appointment of auditors.

 

INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS

 

As at the date of this Circular and during the financial year ended December 31, 2019, no director or executive officer of the Company or proposed nominee for election as a director (and each of their associates) was indebted, including under any securities purchase or other program, to (i) the Company or any of its subsidiaries, or (ii) any other entity which is, or was at any time during the financial year ended December 31, 2019, the subject of a guarantee, support agreement, letter of credit or other similar arrangement or understanding provided by the Company or any of its subsidiaries.

 

INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS

 

No informed person (as such term is defined under applicable securities laws) of the Company or proposed nominee for election as a director (and each of their associates and affiliates) has had any material interest, direct or indirect, in any transaction since January 1, 2019 or in any proposed transaction which has materially affected or would materially affect the Company or any of its subsidiaries other than as disclosed herein.

 

WHERE YOU CAN FIND ADDITIONAL INFORMATION

 

We file reports and other information with the Canadian Securities Administrators. These reports and information are available to the public free of charge on SEDAR at www.sedar.com. Financial information is provided in our audited consolidated financial statements and management’s discussion and analysis for the year ended December 31, 2018, which can be found on SEDAR at www.sedar.com. Shareholders may also request copies of these documents from our Manager of Investor Relations by telephone at +1 (416) 861 9797 or by e-mail at aguthrie@largoresources.com.

 

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DIRECTORS’ APPROVAL

 

The contents of this Circular and the sending thereof to our shareholders have been approved by the Board of Directors of Largo Resources Ltd.

 

By Order of the Board of Directors

 

(signed) “Paulo Misk”

 

Director and Chief Executive Officer

 

 

May 1, 2020

 

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SCHEDULE A
ORDINARY RESOLUTION

 

RESOLUTION TO APPROVE THE AMENDED SHARE COMPENSATION PLAN

 

BE IT RESOLVED AS AN ORDINARY RESOLUTION THAT:

 

1.                                         The Amended Share Compensation Plan, as substantially described in the Circular with respect to the Meeting, be and is hereby approved, and confirmed;

 

2.                                         all unallocated RSUs and Options under the Amended Share Compensation Plan are hereby authorized, and approved;

 

3.                                         the Board be and is hereby authorized to reserve a sufficient number of Shares to satisfy the requirement of the Amended Share Compensation Plan;

 

4.                                         the Board be and is hereby authorized to grant RSUs and Options under the Amended Stock Option Plan until June 8, 2023, being the date that is three years from the date where shareholder approval is being sought; and

 

5.                                         any one director or senior officer of the Company be and is hereby authorized to do such things and to sign, execute and deliver all documents that such director and officer may, in their discretion, determine to be necessary in order to give full effect to the intent and purpose of this resolution.

 

 

SCHEDULE B
BOARD MANDATE

 

LARGO RESOURCES LTD.
MANDATE OF THE BOARD OF DIRECTORS

 

I.                GENERAL

 

1.                                      Mandate

 

The board of directors (the “Board”) of Largo Resources Ltd. (the “Corporation”) is responsible for the stewardship of the Corporation including the supervision of the management of the business and the affairs of the Corporation and for acting in the best interests of the Corporation. The Board acts in accordance with the Business Corporations Act (Ontario); the Corporation’s Articles of Incorporation; the Corporation’s Code of Business Conduct and Ethics; this Mandate and the charters of the Board’s committees and other applicable laws and policies.

 

2.                                      Board Committees

 

(a)                                 To assist it in exercising its responsibilities, the Board has established three standing committees of the Board:

 

(i)                                     an audit committee (the “Audit Committee”);

 

(ii)                                  a compensation committee (the “Compensation Committee”); and

 

(iii)                               a governance and nominating committee (the “Governance Committee”).

 

The Board may establish other standing committees, from time to time.

 

(b)                                 Each committee will have a written charter. At a minimum, each charter will clearly establish the committee’s purpose, responsibilities, member qualifications, member appointment and removal, structure and operations (including any authority to delegate to individual members and subcommittees), and manner of reporting to the Board. Each charter will be reviewed by the Board (or a committee thereof) on an annual basis.

 

(c)                                  The Board is responsible for appointing directors to each of its committees, in accordance with the written charter for each committee.

 

II                                      PROCEDURAL MATTERS

 

1.                                      Composition

 

A majority of the members of the Board shall be independent within the meaning of all applicable Canadian securities laws and the rules of the TSX, unless exempted thereunder.

 

2.                                      Board Structure and Operations

 

(a)                                 Chair

 

(i)                                     The Board will appoint an independent director to act as Chair of the Board. If the Board determines that this is not appropriate in the circumstances and instead appoints a non-independent director, who shall not also be a member of management of the Corporation, to act as Chair of the Board, the Board will also appoint an independent director to act as Lead Director, who shall not also be a member of management of the Corporation. Either an

 

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independent Chair of the Board or a Lead Director will act as the effective leader of the Board, including chairing Board meetings and ensuring that the Board’s agenda will enable it to successfully carry out its duties.

 

(ii)                                  If the Chair of the Board or Lead Director, if applicable, is absent or unable or unwilling to act, the directors present at the meeting will choose one of their number to be chair of the meeting.

 

(iii)                               The Chair of the Board and the Lead Director, as applicable, may be removed at any time at the discretion of the Board.

 

(iv)                              If in any year the Board does not appoint a Chair or Lead Director, if applicable, the incumbent Chair and Lead Director, if applicable, will each continue in office until a successor is appointed.

 

(b)                                 Meetings

 

(i)                                     The Chair of the Board or Lead Director, if applicable, in consultation with Board members, will determine the schedule and frequency of Board meetings. However, the Board will meet at least four times per year. A quorum of the Board may, at any time, call a meeting of the Board.

 

(ii)                                  The Chair of the Board or Lead Director, if applicable, is responsible for developing and setting the agenda for Board meetings, with the assistance of Board members, the Chief Executive Officer (the “CEO”) and the Secretary of the Corporation. Appropriate materials will be provided to the Board in advance of meetings, although the Board recognizes that in certain cases this may not be possible. Materials presented to the Board should be as concise as possible, while providing sufficient information for the directors to make an informed judgment.

 

(c)                                  Notice

 

Notice of the time and place of every meeting will be given in writing to each member of the Board not less than 48 hours before the time when the meeting is to be held but if a Board member or the CEO considers it a matter of urgency that a meeting of the Board be convened, he or she may give notice of a meeting by means of any telephone, electronic or other communication facility no less than one hour before the meeting.

 

(d)                                 Quorum

 

A majority of the Board constitutes a quorum at any meeting of the Board.

 

(e)                                  Attendees

 

The Board may invite such officers and employees of the Corporation and advisors as it sees fit from time to time to attend a meeting of the Board and assist in the discussion and consideration of matters relating to the Board.

 

(f)                                   In Camera Sessions

 

The Board will reserve a portion of each Board meeting for the independent directors to meet without any members of management or other non-independent directors present.

 

(g)                                  Records

 

Minutes of meetings of the Board will be recorded and maintained by the Secretary of the Corporation and will be subsequently presented to the Board for review and approval.

 

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3.                                      Board Mandate Review

 

The Board will review and assess the adequacy of this Mandate on an annual basis, taking into account all legislative and regulatory requirements applicable to the Board.

 

III                                 RESPONSIBILITIES

 

The Board is responsible for the stewardship of the Corporation, including the supervision of management of the business and the affairs of the Corporation. As part of this mandate, the Board approves decisions that affect the Corporation before they are implemented. As a part of its overall responsibility for the stewardship of the Corporation, the Board assumes responsibility for the following:

 

1.                                      Stewardship

 

The Board sets and supervises standards of corporate governance that establishes a culture of integrity throughout the Corporation, and guides the operations of the Corporation and management in compliance with the Corporation’s constating documents and Ontario corporate law, securities legislation in each jurisdiction in which the Corporation is a reporting issuer, and other applicable laws.

 

2.                                      Supervising Management of the Corporation

 

The Board is responsible for supervising the management of the business and affairs of the Corporation, including:

 

(a)                                 designating the offices of the Corporation, appointing such officers, specifying their duties and delegating to them the power to manage the day-to-day business and affairs of the Corporation in accordance with the instructions of the Board;

 

(b)                                 overseeing the review of such officers’ performance and effectiveness; and

 

(c)                                  acting in a supervisory role, such that any duties and powers not delegated to the officers of the Corporation remain with the Board and its committees.

 

3.                                      Strategic Planning

 

The Board is actively involved in the Corporation’s strategic planning process. Management discusses and reviews materials relating to the strategic plan with the Board. The Board is responsible for reviewing and approving the strategic plan, which takes into account the opportunities and risks of the business. Following the completion of each year, the Board undertakes a review of the strategic plan to assess the strengths, weaknesses and overall results of the plan. The Board also receives reports from management throughout the year on the current and proposed operations of the Corporation and reviews opportunities and assesses risks so that the plan can be adjusted.

 

4.                                      Risk Management and Compliance

 

The Board, in its annual assessment of the strategic plan, reviews principal risks and considers management’s plans to monitor and manage risk. The principal risks to the Corporation have been identified as risks relating to the environment, safety, securities markets, commodity prices, currency fluctuations, legislative and title issues arising from operations and the fact that mineral exploration and development activities are inherently risky. The Board has instructed management to assist the Board in identifying risks and to promptly alert the Board when a risk has materialized or materially changed. The Board may from time to time, appoint management, board members or advisors to assist in assessing different risks.

 

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5.                                      Financial and Other Reporting, Internal Controls and Information Technology Systems

 

The Board is responsible for overseeing the Corporation’s financial and other reporting, internal controls and information technology systems. The effectiveness and integrity of the Corporation’s internal control and management information systems contribute to the effectiveness of the Board and the Corporation. To maintain the effectiveness and integrity of the Corporation’s financial controls, the Board provides oversight and monitors internal control and management information systems. To assist it with these responsibilities, the Board has established the Audit Committee.

 

6.                                      Compensation, Succession Planning and other Human Resources Matters

 

The Board is responsible for overseeing:

 

(a)                                 compensation matters (including compensation of officers and other senior management personnel and approving the Corporation’s annual compensation budget);

 

(b)                                 succession planning (including appointing, training and monitoring senior management); and

 

(c)                                  the health and safety of the Corporation’s employees.

 

In particular, the Board annually identifies key individuals of the Corporation and, in consultation with management, determines how to replace such individuals should the need arise. Management is assigned the responsibility of training and advising new persons of the Corporation’s policies and practices. The CEO has primary responsibility for supervising and reviewing the performance of other senior management.

 

To assist it with these responsibilities, the Board has established the Compensation Committee.

 

7.                                      Code of Business Conduct and Ethics

 

The Board is responsible for adopting a written code of business conduct and ethics (the “Code”), applicable to directors, officers and employees of the Corporation. The Code constitutes written standards that are reasonably designed to promote integrity and deter wrongdoing and addresses the following issues:

 

(a)                                 conflicts of interest, including transactions and agreements in respect of which a director or executive officer has a material interest;

 

(b)                                 protection and proper use of corporate assets and opportunities;

 

(c)                                  confidentiality of corporate information;

 

(d)                                 fair dealing with the Corporation’s security holders, customers, suppliers, competitors and employees;

 

(e)                                  compliance with laws, rules and regulations; and

 

(f)                                   reporting of any illegal or unethical behaviour.

 

The Board is responsible for monitoring compliance with the Code. Any waivers from the Code that are granted for the benefit of the Corporation’s directors or executive officers will be granted by the Board (or a Board committee) only. To assist it with these responsibilities, the Board has established the Governance Committee.

 

8.                                      Timely Disclosure, Confidentiality and Insider Trading Policy and Feedback

 

The Timely Disclosure, Confidentiality and Insider Trading Policy governs communication with shareholders and others and reflects the Corporation’s commitment to timely, effective and accurate corporate disclosure in accordance with all applicable laws and with a view to enhancing the Corporation’s relationship with its shareholders.

 

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The Corporation’s website facilitates feedback from shareholders by permitting requests for information and sending messages directly to the Corporation.

 

9.                                      Corporate Governance

 

The Board has overall responsibility for developing the Corporation’s approach to corporate governance including keeping informed of legal requirements and trends regarding corporate governance, monitoring and evaluating the functioning of the Board and committees of the Board, and for developing, implementing and monitoring good corporate governance practices (including the mandate of the Board and the charters of its committees and corporate governance related policies and procedures). To assist it with these responsibilities, the Board has established the Governance Committee.

 

10.                               Other Board Matters

 

(a)                                 Position Descriptions

 

The Board is responsible for:

 

(i)                                     developing clear written position descriptions for the Chair of the Board, the Lead Director, if applicable, and the Chair of each Board committee; and

 

(ii)                                  together with the CEO, developing a clear position description for the CEO.

 

(b)                                 Orientation and Continuing Education

 

The Board is responsible for arranging:

 

(i)                                     for new directors to receive a comprehensive orientation, so that they fully understand:

 

(A)                               the role of the Board and its committees, as well as the contribution individual directors are expected to make (including, in particular, the commitment of time and energy that the Corporation expects from its directors), and

 

(B)                               the nature and operation of the Corporation’s business; and

 

(ii)                                  continuing education opportunities for all directors, so that they may:

 

(A)                               maintain or enhance their skills and abilities as directors, and

 

(B)                               ensure that their knowledge and understanding of the Corporation’s business remains current.

 

(c)                                  Regular Board Assessments

 

The Board is responsible for annually assessing its own effectiveness and contribution, as well as the effectiveness and contribution of each Board committee and each individual director. Such assessments should consider:

 

(i)                                     in the case of the Board, this Mandate;

 

(ii)                                  in the case of a Board committee, the committee’s charter; and

 

(iii)                               in the case of an individual director, the applicable position description(s), as well as the competencies and skills each individual director is expected to bring to the Board.

 

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(d)                                 Nomination of Directors

 

The Board is also responsible for identifying individuals qualified to become new Board members and recommending the new director nominees for the next annual meeting of shareholders. Prior to nominating or appointing individuals as directors, the Board should:

 

(i)                                     consider what competencies and skills the Board, as a whole, should possess;

 

(ii)                                  assess what competencies and skills each existing director possesses; and

 

(iii)                               consider the appropriate size of the Board, with a view to facilitating effective decision-making.

 

To assist it with these responsibilities, the Board has established the Governance Committee.

 

(e)                                  Outside Advisors

 

In performing its functions, the Board is entitled to rely on the advice, reports and opinions of management, counsel, accountants, auditors and other expert advisors. The Board has the authority to retain and approve the fees and retention terms of its outside advisors.

 

Approved and adopted: May 27, 2019

 

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SCHEDULE C
 AMENDED SHARE COMPENSATION PLAN

 

LARGO RESOURCES LTD.
AMENDED AND RESTATED SHARE COMPENSATION PLAN

 

1.                                      DEFINITIONS AND INTERPRETATION

 

1.1                               Definitions: For purposes of the Plan, unless the context requires otherwise, the following words and terms shall have the following meanings:

 

(a)                                 “1933 Act” means the United States Securities Act of 1933, as amended;

 

(b)                                 “Account” has the meaning attributed to that term in section 4.9;

 

(c)                                  “Administrators” means the Board or such other persons as may be designated by the Board from time to time;

 

(d)                                 “Associate” has the meaning attributed to that term in the Securities Act (Ontario);

 

(e)                                  “Award Date” means the date or dates on which an award of RSUs is made to a Participant in accordance with section 4.1;

 

(f)                                   “Blackout Period” means the period during which designated directors, officers and employees of the Corporation cannot trade the Common Shares pursuant to the Corporation’s policy respecting restrictions on directors’, officers’ and employee trading which is in effect at that time (which, for greater certainty, does not include the period during which a cease trade order is in effect to which the Corporation or in respect of an insider, that insider is subject);

 

(g)                                  “Board” means the board of directors of the Corporation from time to time;

 

(h)                                 “Business Day” means each day other than a Saturday, Sunday or statutory holiday in Toronto, Ontario, Canada;

 

(i)                                     “Change of Control” means:

 

(i)                                     the acceptance of an Offer by a sufficient number of holders of voting shares in the capital of the Corporation to constitute the offeror, together with persons acting jointly or in concert with the offeror, a shareholder of the Corporation being entitled to exercise more than 50% of the voting rights attaching to the outstanding voting shares in the capital of the Corporation (provided that prior to the Offer, the offeror together with its affiliates and related parties was not entitled to exercise more than 50% of the voting rights attaching to the outstanding voting shares in the capital of the Corporation),

 

(ii)                                  the completion of a consolidation, merger or amalgamation of the Corporation with or into any other corporation whereby the voting shareholders of the Corporation immediately prior to the consolidation, merger or amalgamation receive less than 50% of the voting rights attaching to the outstanding voting shares of the consolidated, merged or amalgamated corporation or any parent entity, or

 

(iii)                               the completion of a sale whereby all or substantially all of the Corporation’s undertakings and assets become the property of any other entity and the voting

 

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shareholders of the Corporation immediately prior to that sale hold less than 50% of the voting rights attaching to the outstanding voting securities of that other entity immediately following that sale;

 

(j)                                    “Clawback Policy” means the clawback policy of the Corporation as determined by the Board, and as it may be amended, replaced, or restated from time to time;

 

(k)                                 “Code” means the U.S. Internal Revenue Code of 1986, as amended;

 

(l)                                     “Common Shares” means the common shares of the Corporation;

 

(m)                             “Consultant” means a consultant that (i) is an individual that provides bona fide services to the Corporation pursuant to a written contract for services with the Corporation and such services are not in connection with the offer or sale of securities in a capital-raising transaction, and do not directly or indirectly promote or maintain a market for the Corporation’s securities, or (ii) otherwise satisfies the requirements to participate in an “employee benefit plan” as defined in Rule 405 under the 1933 Act registered by the Corporation on Form S-8;

 

(n)                                 “Corporation” means Largo Resources Ltd., a company existing under the Business Corporations Act (Ontario) and the successors thereof;

 

(o)                                 “Effective Date” means June 8, 2020;

 

(p)                                 “Eligible Person” means:

 

(i)                                     any officer or employee of the Corporation and/or any officer or employee of any Subsidiary of the Corporation and, solely for purposes of the grant of Options, any non-employee director of the Corporation and/or any non-employee director of any Subsidiary of the Corporation; and

 

(ii)                                  a Consultant;

 

(q)                                 “Event of Termination” means an event whereby a Participant ceases to be an Eligible Person and shall be deemed to have occurred by the giving of any notice of termination of employment or service (whether voluntary or involuntary and whether with or without cause), retirement, or any cessation of employment or service for any reason whatsoever, including disability or death;

 

(r)                                    “Fair Market Value” of a Common Share on a day means the weighted average trading price of the Common Shares on any exchange in Canada where the Common Shares are listed (including the TSX) for the last five trading days prior to such day or, on a day during any period when the Common Shares are not listed for trading on an exchange, the fair market value per Common Share on such day as determined by the Administrators in their sole discretion with reference to such factors or such information as the Administrators in their discretion deem appropriate;

 

(s)                                   “Grant Date” means the date on which a grant of Options is made to a Participant in accordance with section 5.1;

 

(t)                                    “insider” has the meaning attributed to that term in the TSX Company Manual;

 

(u)                                 “Insider Participant” means a Participant who is (i) an insider of the Corporation or any of its Subsidiaries, and (ii) an associate of any person who is an insider by virtue of (i);

 

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(v)                                 “Offer” means a bona fide arm’s length offer made to all holders of voting shares in the capital of the Corporation to purchase, directly or indirectly, voting shares in the capital of the Corporation;

 

(w)                               “Option” means an option granted to an Eligible Person under the Plan to purchase Common Shares;

 

(x)                                 “Option Agreement” has the meaning ascribed to that term in section 3.2;

 

(y)                                 “Participant” means an Eligible Person selected by the Administrators to participate in the Plan in accordance with section 3.1 hereof;

 

(z)                                  “Plan” means this amended and restated share compensation plan, as amended, replaced or restated from time to time;

 

(aa)                          “Redemption Date” has the meaning ascribed to that term in section 4.4(a);

 

(bb)                          “Redemption Notice” means a notice in the form attached as Exhibit B to this Plan that may be delivered by a Participant to the Corporation as specified in section 4.4 hereof, pursuant to which the Participant may, subject to the terms of the applicable RSU Agreement, request a redemption of all or a portion of the Participant’s vested RSUs during a Restriction Period;

 

(cc)                            “Reserved for Issuance” refers to Common Shares that may be issued in the future upon the vesting of RSUs which have been awarded and upon the exercise of Options which have been granted;

 

(dd)                          “Restriction Period” means the period determined by the Board pursuant to section 4.3(a)(iii) hereof;

 

(ee)                            “RSU” means a right granted in accordance with section 4.1 hereof to receive a Common Share that becomes vested in accordance with section 4.3;

 

(ff)                              “RSU Agreement” has the meaning ascribed to that term in section 3.2;

 

(gg)                            “RSU Cash Equivalent” has the meaning ascribed to that term in section 4.4(b);

 

(hh)                          “Share Compensation Arrangement” means a stock option, stock option plan, employee stock purchase plan or any other compensation or incentive mechanism involving the issuance or potential issuance of Common Shares to directors, officers and employees of the Corporation and any of its Subsidiaries or to consultants, including a share purchase from treasury which is financially assisted by the Corporation by way of a loan, guarantee or otherwise;

 

(ii)                                  “Subsidiary” has the meaning ascribed thereto in the Securities Act (Ontario) and “Subsidiaries” shall have a corresponding meaning;

 

(jj)                                “TSX” means the Toronto Stock Exchange;

 

(kk)                          “U.S. Participant” means a Participant who is a citizen of the United States or a resident of the United States, as defined in section 7701(a)(30)(A) and section 7701(b)(1) of the Code and any other Participant who is subject to tax under the Code with respect to compensatory awards granted pursuant to the Plan; and

 

(ll)                                  “Withholding Obligations” has the meaning ascribed to that term in section 4.7.

 

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1.2                               Headings: The headings of all articles, sections, and paragraphs in the Plan are inserted for convenience of reference only and shall not affect the construction or interpretation of the Plan.

 

1.3                               Context, Construction: Whenever the singular or masculine are used in the Plan, the same shall be construed as being the plural or feminine or neuter or vice versa where the context so requires.

 

1.4                               References to this Plan: The words “hereto”, “herein”, “hereby”, “hereunder”, “hereof” and similar expressions mean or refer to the Plan as a whole and not to any particular article, section, paragraph or other part hereof.

 

1.5                               Currency: All references in this Plan or in any agreement entered into under this Plan to “dollars”, “$” or lawful currency shall be references to Canadian dollars, unless the context otherwise requires.

 

2.                                      PURPOSE AND ADMINISTRATION OF THE PLAN

 

2.1                               Purpose: The purpose of the Plan is to advance the interests of the Corporation and its Subsidiaries, and its shareholders by: (i) ensuring that the interests of Eligible Persons are aligned with the success of the Corporation and its Subsidiaries; (ii) encouraging stock ownership by Eligible Persons; and (iii) providing compensation opportunities to attract, retain and motivate Eligible Persons.

 

2.2                               Common Shares Subject to the Plan:

 

(a)                                 The total number of Common Shares reserved and available for grant and issuance pursuant to this Plan shall not exceed 10% of the issued and outstanding Common Shares from time to time (together with those Common Shares issuable pursuant to any other security based compensation arrangements of the Corporation or its Subsidiaries);

 

(b)                                 The number of Common Shares issuable under the Plan to any one Eligible Person (together with those Common Shares issuable pursuant to any other security based compensation arrangements of the Corporation or its Subsidiaries) shall not exceed 5% of the issued and outstanding Common Shares from time to time;

 

(c)                                  The number of Common Shares issuable to insiders under the Plan (together with those Common Shares issuable pursuant to any other security based compensation arrangements of the Corporation or its Subsidiaries) shall not, at any time, exceed 10% of the issued and outstanding Common Shares;

 

(d)                                 The number of Common Shares issued to insiders under the Plan within a one-year period (together with those Common Shares that are issued pursuant to any other security based compensation arrangements of the Corporation or its Subsidiaries) shall not, at any time, exceed 10% of the issued and outstanding Common Shares; and

 

(e)                                  The number of Common Shares reserved for issuance to Participants who are non-employee directors pursuant to Options shall be limited to the lesser of: (i) 1% of the Common Shares then issued and outstanding; and (ii) $1,000,000 in total value of grants of Options that each director receives over the life of the Plan from the Effective Date or an annual grant value of $100,000 per director, in both cases based on a valuation determined using the Black-Scholes formula or any other formula which is widely accepted by the business community as a method for the valuation of options.

 

2.3                               Administration of the Plan: The Plan shall be administered by the Administrators, through the recommendation of the Compensation Committee of the Board. Subject to any limitations of the Plan, the Administrators shall have the power and authority to:

 

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(a)                                 adopt rules and regulations for implementing the Plan;

 

(b)                                 determine the eligibility of persons to participate in the Plan, when RSUs and Options to Eligible Persons shall be awarded or granted, the number of RSUs and Options to be awarded or granted, the vesting criteria for each award of RSUs and the vesting period for each grant of Options;

 

(c)                                  interpret and construe the provisions of the Plan and any agreement or instrument under the Plan;

 

(d)                                 subject to regulatory requirements, make exceptions to the Plan in circumstances which they determine to be exceptional; and

 

(e)                                  make all other determinations and take all other actions as they determine to be necessary or desirable to implement, administer and give effect to the Plan.

 

3.                                      ELIGIBILITY AND PARTICIPATION IN PLAN

 

3.1                               The Plan and Participation: The Plan is hereby established for Eligible Persons. RSUs may be awarded and Options may be granted to any Eligible Person as determined by the Administrators in accordance with the provisions hereof; provided, however, that RSUs shall not be awarded to non-employee directors of the Corporation in any circumstance.

 

3.2                               Agreements: All RSUs awarded hereunder shall be evidenced by an RSU Agreement (“RSU Agreement”) between the Corporation and the Participant, substantially in the form set out in Exhibit A or in such other form as the Administrators may approve from time to time. All Options granted hereunder shall be evidenced by an option agreement (“Option Agreement”) between the Corporation and the Participant, substantially in the form as set out in C or in such other form as the Administrators may approve from time to time.

 

4.                                      AWARD OF RESTRICTED SHARE UNITS

 

4.1                               Award of RSU: Subject to section 2.2, the total number of RSUs that may be awarded pursuant to this section shall not exceed 2.5% of the issued and outstanding Common Shares from time to time.

 

The Administrators may, at any time and from time to time, award RSUs to Eligible Persons. In awarding any RSUs, the Administrators shall determine:

 

(a)                                 to whom RSUs pursuant to the Plan will be awarded;

 

(b)                                 the number of RSUs to be awarded and credited to each Participant’s Account;

 

(c)                                  the Award Date;

 

(d)                                 the Restriction Period; and

 

(e)                                  subject to section 4.3 hereof, the applicable vesting criteria.

 

Upon the award of RSUs, the number of RSUs awarded to a Participant shall be credited to the Participant’s Account effective as of the Award Date.

 

4.2                               RSU Agreement: Upon the award of each RSU to a Participant, a RSU Agreement shall be delivered by the Administrators to the Participant.

 

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4.3                               Vesting and Restriction Period:

 

(a)                                 Subject to subsection (b) below, at the time of the award of RSUs, the Administrators shall determine in their sole discretion, which shall be evidenced in the applicable RSU Agreement:

 

(i)                                     the vesting criteria applicable to such RSUs;

 

(ii)                                  criteria such as performance vesting, in which the number of Common Shares to be delivered to a Participant for each RSU that vests may fluctuate based upon the Corporation’s performance and/or the market price of the Common Shares, in such manner as determined by the Administrators in their sole discretion; and

 

(iii)                               the period during which a vested RSU may be redeemed by the Participant, and may determine the maximum period, during which any vested RSU may remain outstanding prior to settlement (the “Restriction Period”). For U.S. Participants, the Restriction Period commences on the date on which the RSUs become vested and ends on December 31st of the calendar year in which the RSU has vested, and for this purpose the date on which the RSUs become vested is the date on which such RSUs are not, or are no longer, subject to a substantial risk of forfeiture, (as that term is defined under applicable U.S. tax laws).

 

(b)                                 all vesting and issuances or payments, as applicable, in respect of an RSU shall be completed no later than December 15 of the third calendar year commencing after the Award Date for such RSU.

 

(c)                                  Subject to the vesting and other conditions and provisions in this Plan and in the RSU Agreement, each RSU awarded to a Participant shall entitle the Participant to receive on settlement one Share. For greater certainty, the Corporation is obligated to deliver one Common Share on the settlement of each RSU and shall have no independent discretion to settle an RSU in cash or other property other than Common Shares (subject only to an election by a Participant, with the consent of the Administrators, in accordance with Section 4.4(b), below).

 

4.4                               Settlement of RSUs:

 

(a)                                 Subject to the terms of the applicable RSU Agreement and this Plan, vested RSUs may be redeemed by a Participant, in whole or in part, at any time on or prior to the end of the Restriction Period, upon delivery of a Redemption Notice to the Corporation in the form attached hereto as Exhibit B. The Redemption Notice shall specify the date upon which such vested RSUs shall be redeemed, which date shall be no later than the end of the Restriction Period (the “Redemption Date”), and subject to earlier redemption in accordance with section 4.3(b). With respect to each RSU of a U.S. Participant, subject to the limitation in Section 4.3(a)(iii), such Redemption Date shall not, in any case, exceed 60 days following the applicable vesting date.

 

(b)                                 Notwithstanding Section 4.4(a), the Participant will have, at its sole discretion, but subject to the consent of the Administrators, the ability to elect in its Redemption Notice to redeem such portion (and only such portion) of its vested RSUs on the Redemption Date for a cash amount equal to the Withholding Obligations associated with the aggregate number of RSUs to be redeemed at a value calculated by such vested RSUs to be redeemed for cash multiplied by the Fair Market Value  (the “RSU Cash Equivalent”), in lieu of receiving Common Shares for such RSUs. For greater certainty, the Corporation will have no discretion to satisfy the redemption of any RSUs for the RSU Cash Equivalent in the absence of a unilateral election by the Participant in its Redemption Notice.

 

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(c)                                  Upon receipt by the Corporation of a Redemption Notice (and for U.S. Participants, no later than December 31st of the calendar year in which the RSU has vested), the Corporation shall redeem the RSUs on the Redemption Date and shall satisfy the redemption, as soon as reasonably practicable, by issuing from treasury one fully-paid and non-assessable Common Share for each full RSU to be redeemed (subject to the satisfaction of any applicable Withholding Obligation under section 4.7). and such Participant shall be registered on the books of the Corporation as the holder of the appropriate number of Common Shares. No person or entity shall enjoy any part of the rights or privileges of a holder of Common Shares issuable pursuant to RSUs until that person or entity becomes the holder of record of those Common Shares. For greater certainty, the Corporation shall not issue any Common Shares to a Participant in satisfaction of the redemption of an RSU prior to the Corporation being satisfied in its sole discretion that all applicable taxes under section 4.7 will be timely withheld or received and remitted to the appropriate taxation authorities in respect of any particular Participant and any particular RSU.

 

(d)                                 Where a Participant has elected in a Redemption Notice to settle a portion of its RSUs for the RSU Cash Equivalent, the Participant shall be deemed to have instructed the Corporation to withhold and remit such RSU Cash Equivalent to the applicable taxation authorities on account of any Withholding Obligations of the Corporation pursuant to Section 4.7 and the Corporation shall deliver any excess cash after making the necessary remittances as soon as reasonable practicable.

 

4.5                               Determination of Amounts:

 

(a)                                 For purposes of determining any RSU Cash Equivalent, such calculation will be made on the Redemption Date based on the Fair Market Value on such date multiplied by the number of vested RSUs in the Participant’s Account that the Participant has elected in a Redemption Notice to be settled in cash.

 

(b)                                 For the purposes of determining the number of Common Shares to be issued or delivered to a Participant upon settlement of RSUs pursuant to section 4.4, such calculation will be made on the Redemption Date based on the whole number of Common Shares equal to the whole number of vested RSUs then recorded in the Participant’s Account less any RSUs that a Participant has elected in a Redemption Notice to be settled in the RSU Cash Equivalent.

 

4.6                               Blackout Periods: Should the date of vesting (or the final Redemption Date) of an RSU fall within a Blackout Period or within nine Business Days following the expiration of a Blackout Period, such date of vesting shall be automatically extended without any further act or formality to that date which is the tenth Business Day after the end of the Blackout Period, such tenth Business Day to be considered the date of vesting for such RSU for all purposes under the Plan. Notwithstanding section 6.4(a) hereof, the ten Business Day period referred to in this section 4.6 may not be extended by the Board. For U.S. Participants, this section 4.6 shall not operate to issue shares later than December 31st of the calendar year in which the shares would have been issued absent this section 4.6.

 

4.7                               Taxes and Source Deductions: The Corporation or an affiliate of the Corporation may take such reasonable steps for the deduction and withholding of any taxes and other required source deductions which the Corporation or the affiliate, as the case may be, is required by any law or regulation of any governmental authority whatsoever to remit in connection with this Plan, any RSUs or any issuance of Common Shares (“Withholding Obligations”). Without limiting the generality of the foregoing, the Corporation may, at its discretion (and, with respect to (iii) below, if elected by the Participant pursuant to section 4.4(b)): (i) deduct and withhold those amounts it is required to remit pursuant to the Withholding Obligations from any cash remuneration or other amount payable to the Participant, whether or not related to the Plan, the vesting of any RSUs or the issue of any Common Shares; (ii) allow the Participant to make a cash payment to the Corporation or its affiliate, as the case may be, equal to

 

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the amount required to be remitted, pursuant to the Withholding Obligations, which amount shall be remitted by the Corporation to the appropriate governmental authority for the account of the Participant; or (iii) settle a portion of vested RSUs of a Participant in cash equal to the amount the Corporation is required to remit, pursuant to the Withholding Obligations, which amount shall be remitted by the Corporation to the appropriate governmental authority for the account of the Participant, or (iv) sell in the open market such portion of the Common Shares issued in settlement of the vested RSUs, for and on behalf of the Participant, as will give rise to proceeds in an amount sufficient to permit the Corporation to satisfy the Withholding Obligations, which amount shall be remitted by the Corporation to the appropriate governmental authority for the account of the Participant. Where the Corporation considers that the steps undertaken in connection with the foregoing result in inadequate withholding or a late remittance of taxes, the delivery of any Common Shares to be issued to a Participant on vesting of any RSUs may be made conditional upon the Participant (or other person) reimbursing or compensating the Corporation or making arrangements satisfactory to the Corporation for the payment to it in a timely manner of all taxes required to be remitted, pursuant to the Withholding Obligations, for the account of the Participant.

 

4.8                               Rights Upon an Event of Termination:

 

(a)                                 If an Event of Termination has occurred in respect of any Participant, any and all Common Shares corresponding to any vested RSUs in the Participant’s Account (including any relating to a Restriction Period in progress) shall be issued as soon as practicable after the Event of Termination to the former Participant in accordance with section 4.4 hereof.

 

(b)                                 If an Event of Termination has occurred in respect of any Participant, any unvested RSUs in the Participant’s Account shall, unless otherwise determined by the Administrators in their discretion, forthwith and automatically be forfeited by the Participant and cancelled. With respect to any RSU of a U.S. Participant, if the Administrators determine, in their discretion, to waive vesting conditions applicable to an RSU that is unvested at the time of an Event of Termination, such RSU shall not be forfeited or cancelled, but instead will be deemed to be vested and settled and Common Shares delivered following the date of vesting of such RSU, provided that such settlement and delivery of Common Shares will in all cases occur no later than December 31st of the calendar year in which such RSUs were deemed to be vested hereunder.

 

(c)                                  Notwithstanding the foregoing subsection 4.8(b), if a Participant retires in accordance with the Corporation’s retirement policy, at such time, any unvested performance-based RSUs in the Participant’s Account shall not be forfeited by the Participant or cancelled and instead shall be eligible to become vested in accordance with the vesting conditions set forth in the applicable RSU Agreement after such retirement (as if retirement had not occurred), but only if the performance vesting criteria, if any, are met on the applicable date.

 

(d)                                 For greater certainty, if a Participant’s employment is terminated for just cause, each unvested RSU in the Participant’s Account shall forthwith and automatically be forfeited by the Participant and cancelled.

 

(e)                                  For the purposes of this Plan and all matters relating to the RSUs, the date of the Event of Termination shall be determined without regard to any applicable severance or termination pay, damages, or any claim thereto (whether express, implied, contractual, statutory, or at common law).

 

4.9                               RSU Accounts: A separate notional account for RSUs shall be maintained for each Participant (an “Account”). Each Account will be credited with RSUs awarded to the Participant from time to time pursuant to section 4.1 hereof by way of a bookkeeping entry in the books of the Corporation. On the

 

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vesting of the RSUs pursuant to section 4.3 hereof and the corresponding issuance of Common Shares to the Participant pursuant to section 4.4 hereof, or on the forfeiture and cancellation of the RSUs pursuant to section 4.8 hereof, the applicable RSUs credited to the Participant’s Account will be cancelled.

 

4.10                        Record Keeping: The Corporation shall maintain records in which shall be recorded:

 

(a)                                 the name and address of each Participant;

 

(b)                                 the number of RSUs credited to each Participant’s Account;

 

(c)                                  any and all adjustments made to RSUs recorded in each Participant’s Account; and

 

(d)                                 any other information which the Corporation considers appropriate to record in such records.

 

5.                                      GRANT OF OPTIONS

 

5.1                               Grant of Options: Subject to section 2.2, the total number of Common Shares reserved and available for grant pursuant to this section on exercise of Options shall not exceed 7.5% of the number of issued and outstanding Common Shares from time to time.

 

The Administrators may at any time and from time to time grant Options to Eligible Persons. In granting any Options, the Administrators shall determine:

 

(a)                                 to whom Options pursuant to the Plan will be granted;

 

(b)                                 the number of Options to be granted, the Grant Date and the exercise price of each Option;

 

(c)                                  the expiration date of each Option; and

 

(d)                                 subject to section 5.3 hereof, the applicable vesting criteria,

 

provided, however that the exercise price for a Common Share pursuant to any Option shall not be less than the Fair Market Value of a Common Share on the Grant Date in respect of that Option, and with respect to Options granted to U.S. Participants, the exercise price shall not be less than the greater of (i) Fair Market Value of a Common Share on the Grant Date and (ii) the closing price of the Common Shares on any exchange in Canada where Common Shares are listed on the last trading day prior to the Grant Date. No options granted to U.S. Participants are intended to be “incentive stock options” within the meaning of the Code.

 

5.2                               Option Agreement: Upon each grant of Options to a Participant, an Option Agreement shall be delivered by the Administrators to the Participant.

 

5.3                               Vesting:

 

(a)                                 Subject to subsection 5.3(b) below, at the time of the grant of any Options, the Administrators shall determine in their sole discretion the vesting criteria applicable to such Options.

 

(b)                                 Unless otherwise determined by the Administrators, Options shall vest and become exercisable in respect of 33-1/3% of the Common Shares subject to such Options on the first day after each of the first three anniversaries of the Grant Date of such Options.

 

5.4                               Term of Option/Blackout Periods: The term of each Option shall be determined by the Administrators; provided that no Option shall be exercisable after ten years from the date on which it is granted. Should

 

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the term of an Option expire on a date that falls within a Blackout Period or within nine Business Days following the expiration of a Blackout Period, such expiration date shall be automatically extended without any further act or formality to that date which is the tenth Business Day after the end of the Blackout Period, such tenth Business Day to be considered the expiration date for such Option for all purposes under the Plan. Notwithstanding section 6.4(a) hereof, the ten Business Day period referred to in this section 5.4 may not be extended by the Board.

 

5.5                               Exercise of Option:

 

Options that have vested in accordance with the provisions of this Plan and the applicable Option Agreement may be exercised at any time, or from time to time, during their term as to any number of whole Common Shares that are then available for purchase thereunder; provided that no partial exercise may be for less than 100 whole Common Shares. Options may be exercised by delivery of a written notice of exercise to the Administrators, substantially in the form attached to this Plan as  Exhibit D, with respect to the Options, or by any other form or method of exercise acceptable to the Administrators.

 

5.6                               Payment and Issuance:

 

(a)                                 Upon actual receipt by the Corporation or its agent of the materials required by subsection 5.5 and receipt by the Corporation of a cheque or other form of acceptable payment for the aggregate exercise price, which may include compliance with any protocol for cashless exercise of Options as is approved by the Administrators from time to time, the number of Common Shares in respect of which the Options are exercised will be issued as fully paid and non-assessable shares and the Participant exercising the Options shall be registered on the books of the Corporation as the holder of the appropriate number of Common Shares. No person or entity shall enjoy any part of the rights or privileges of a holder of Common Shares which are subject to Options until that person or entity becomes the holder of record of those Common Shares. No Common Shares will be issued by the Corporation prior to the receipt of payment by the Corporation for the aggregate exercise price for the Options being exercised.

 

(b)                                 Without limiting the foregoing, and unless otherwise determined by the Administrators or not compliant with any applicable laws, (i) cashless exercise of Options shall only be available to a Participant who was granted and is exercising such Options outside the United States in compliance with Regulation S under the 1933 Act at a time when the Common Shares are listed and posted for trading on a stock exchange or market in Canada, the Participant intends to immediately sell the Common Shares issuable upon exercise of such Options in Canada and the proceeds of sale will be sufficient to satisfy the exercise price of the Options, and (ii) if an eligible Participant elects to exercise the Options through cashless exercise and complies with any relevant protocols approved by the Administrators, a sufficient number of the Common Shares issued upon exercise of the Options will be sold in Canada by a designated broker on behalf of the Participant to satisfy the exercise price of the Options, the exercise price of the Options will be delivered to the Corporation and the Participant will receive only the remaining unsold Common Shares from the exercise of the Options and the net proceeds of the sale after deducting the exercise price of the Options, applicable taxes and any applicable fees and commissions, all as determined by the Administrators from time to time. The Corporation shall not deliver the Common Shares issuable upon a cashless exercise of Options until receipt of the exercise price therefor, whether by a designated broker selling the Common Shares issuable upon exercise of such Options through a short position or such other method determined by the Administrators in compliance with applicable laws.

 

5.7                               Taxes and Source Deductions: The Corporation or an affiliate of the Corporation may take such reasonable steps for the deduction and withholding of any taxes and other required source deductions which the Corporation or the affiliate, as the case may be, is required by any law or regulation of any

 

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governmental authority whatsoever to remit pursuant to the Withholding Obligations in connection with this Plan, any Options or any issuance of Common Shares. Without limiting the generality of the foregoing, the Corporation may, at its discretion: (i) deduct and withhold those amounts it is required to remit, pursuant to the Withholding Obligations, from any cash remuneration or other amount payable to the Participant, whether or not related to the Plan, the exercise of any Options or the issue of any Common Shares; or (ii) allow the Participant to make a cash payment to the Corporation equal to the amount required to be remitted, pursuant to the Withholding Obligations, which amount shall be remitted by the Corporation to the appropriate governmental authority for the account of the Participant. Where the Corporation considers that the steps undertaken in connection with the foregoing result in inadequate withholding or a late remittance of taxes, the delivery of any Common Shares to be issued to a Participant on the exercise of Options may be made conditional upon the Participant (or other person) reimbursing or compensating the Corporation or making arrangements satisfactory to the Corporation for the payment in a timely manner of all taxes required to be remitted, pursuant to the Withholding Obligations, for the account of the Participant.

 

5.8                               Rights Upon an Event of Termination:

 

(a)                                 If an Event of Termination has occurred in respect of a Participant, any unvested Options, to the extent not available for exercise as of the date of the Event of Termination, shall, unless otherwise determined by the Administrators in their discretion, forthwith and automatically be cancelled, terminated and not available for exercise without further consideration or payment to the Participant.

 

(b)                                 Except as otherwise stated herein or otherwise determined by the Administrators in their discretion, upon the occurrence of an Event of Termination in respect of a Participant, any vested Options granted to the Participant that are available for exercise may be exercised only before the earlier of:

 

(i)                                     the expiry of the Option; and

 

(ii)                                  six months after the date of the Event of Termination.

 

(c)                                  Notwithstanding the foregoing subsections 5.8(a) and (b), if a Participant’s employment is terminated for just cause, each Option held by the Participant, whether or not then exercisable, shall forthwith and automatically be cancelled and may not be exercised by the Participant.

 

(d)                                 For the purposes of this Plan and all matters relating to the Options, the date of the Event of Termination shall be determined without regard to any applicable severance or termination pay, damages, or any claim thereto (whether express, implied, contractual, statutory, or at common law).

 

5.9                               Record Keeping: The Corporation shall maintain an Option register in which shall be recorded:

 

(a)                                 the name and address of each holder of Options;

 

(b)                                 the number of Common Shares subject to Options granted to each holder of Options;

 

(c)                                  the term of the Option and exercise price, including adjustments for each Option granted; and

 

(d)                                 any other information which the Corporation considers appropriate to record in such register.

 

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6.                                      GENERAL

 

6.1                               Effective Date of Plan: The Plan shall be effective as of the Effective Date.

 

6.2                               Change of Control: If there is a Change of Control transaction then, notwithstanding any other provision of this Plan except subsection 4.3(b) and the last sentence of subsection 4.3(a)(iii), the Administrators may, in their sole discretion, determine that any or all unvested RSUs and any or all Options (whether or not currently exercisable) shall vest or become exercisable, as applicable, at such time and in such manner as may be determined by the Administrators in their sole discretion such that Participants under the Plan shall be able to participate in the Change of Control transaction, including, at the election of the holder thereof, by surrendering such RSUs and Options to the Corporation or a third party or exchanging such RSUs or Options, for consideration in the form of cash and/or securities, to be determined by the Administrators in their sole discretion. Notwithstanding the foregoing, with respect to Options of U.S. Participants, any exchange, substitution or amendment of such Options will occur only to the extent and in a manner that is permitted under Section 409A of the Code, and with respect to RSUs of U.S. Participants, any surrender or other modification of RSUs will occur only consistent with the requirements of Section 409A of the Code, to the extent applicable.

 

6.3                               Reorganization Adjustments:

 

(a)                                 In the event of any declaration by the Corporation of any stock dividend payable in securities (other than a dividend which may be paid in cash or in securities at the option of the holder of Common Shares), or any subdivision or consolidation of Common Shares, reclassification or conversion of Common Shares, or any combination or exchange of securities, merger, consolidation, recapitalization, amalgamation, plan of arrangement, reorganization, spin off involving the Corporation, distribution (other than normal course cash dividends) of Corporation assets to holders of Common Shares, or any other corporate transaction or event involving the Corporation or the Common Shares, the Administrators, in the Administrators’ sole discretion, may, subject to any relevant resolutions of the Board, and without liability to any person, make such changes or adjustments, if any, as the Administrators consider fair or equitable, in such manner as the Administrators may determine, to reflect such change or event including, without limitation, adjusting the number of Options and RSUs outstanding under this Plan, the type and number of securities or other property to be received upon exercise or redemption thereof, and the exercise price of Options outstanding under this Plan, provided that the value of any Option or RSU immediately after such an adjustment, as determined by the Administrators, shall not exceed the value of such Option or RSU prior thereto, as determined by the Administrators.

 

(b)                                 Notwithstanding the foregoing, with respect to Options and RSUs of U.S. Participants, such changes or adjustments will be in accordance with the requirements of Section 409A of the Code to the extent applicable and will comply with the requirements in subsection 4.3(b).

 

(c)                                  The Corporation shall give notice to each Participant in the manner determined, specified or approved by the Administrators of any change or adjustment made pursuant to this section and, upon such notice, such adjustment shall be conclusive and binding for all purposes.

 

(d)                                 The Administrators may from time to time adopt rules, regulations, policies, guidelines or conditions with respect to the exercise of the power or authority to make changes or adjustments pursuant to section 6.2 or section 6.3(a). The Administrators, in making any determination with respect to changes or adjustments pursuant to section 6.2 or section 6.3(a) shall be entitled to impose such conditions as the Administrators consider or determine necessary in the circumstances, including conditions with respect to satisfaction or payment of all applicable taxes (including, but not limited to, withholding taxes).

 

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6.4                               Amendment or Termination of Plan:

 

(a)                                 Subject to section 6.4(b), the Board may amend this Plan or any RSU or any Option at any time without receiving the consent of Participants or approval of the shareholders of the Corporation provided that any such amendment will:

 

(i)                                     not adversely alter or impair any RSU previously awarded or any Option previously granted (including without limitation any amendments that would result in any adverse tax consequences to the Participant) except as permitted by the provisions of section 6.3 hereof;

 

(ii)                                  be subject to any regulatory approvals including, where required, the approval of the TSX; and

 

(iii)                               be subject to shareholder approval, where required by the requirements of the TSX, provided that for greater certainty, shareholder approval will not be required for the following amendments:

 

(A)                               amendments of a “housekeeping nature”, including any amendment to the Plan or an RSU or Option that is necessary to comply with applicable laws, tax or accounting provisions or the requirements of any regulatory authority or stock exchange and any amendment to the Plan or an RSU or Option to correct or rectify any ambiguity, defective provision, error or omission therein, including any amendment to any definitions therein;

 

(B)                               amendments that are necessary or desirable for RSUs or Options to qualify for favourable treatment under any applicable tax law;

 

(C)                               a change to the vesting provisions of any RSU or any Option (including any alteration, extension or acceleration thereof);

 

(D)                               a change to the termination provisions of any Option or RSUs (for example, relating to termination of employment, resignation, retirement or death) that does not entail an extension beyond the original expiration date (as such date may be extended by virtue of section 5.4);

 

(E)                                the introduction of features to the Plan that would permit the Corporation to, instead of issuing Common Shares from treasury upon the vesting of the RSUs, retain a broker and make payments for the benefit of Participants to such broker who would purchase Common Shares in the open market for such Participants;

 

(F)                                 the introduction of features to the Plan that would permit the Corporation to, instead of issuing Common Shares from treasury upon the vesting of the RSUs, make lump sum cash payments to Participants;

 

(G)                               the introduction of a cashless exercise feature payable in cash or securities, which provides for a full deduction of the number of underlying securities from the Plan reserve; and

 

(H)                              change the application of section 6.3 hereof (Reorganization Adjustments) and section 6.2 (Change of Control).

 

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(b)                                 Notwithstanding the foregoing, shareholder approval will be required in circumstances where an amendment to the Plan would:

 

(i)                                     change from a fixed maximum percentage of issued and outstanding Common Shares to a fixed maximum number of Common Shares;

 

(ii)                                  increase the limits in section 2.2;

 

(iii)                               permit the award of RSUs to non-employee directors of the Corporation or change in the limitations on grants of Options to non-employee directors;

 

(iv)                              permit RSUs or Options to be transferable or assignable other than for normal estate settlement purposes;

 

(v)                                 reduce the exercise price of any Option (including any cancellation of an Option for the purpose of reissuance of a new Option at a lower exercise price to the same person);

 

(vi)                              extend the term of any Option beyond the original term (except if such period is being extended by virtue of section 5.4 hereof);

 

(vii)                           extend the term of any Restriction Period of any RSU beyond the original Restriction Period or beyond the period set out in section 4.3(b); or

 

(viii)                        amend this section 6.4.

 

6.5                               Clawback Provision: Notwithstanding any other provision of this Plan, any RSU or Option issued, granted, or awarded to any Participant, and any Common Shares issued thereunder, and any amount received by any Participant with respect to any such RSU, Option, or Common Shares, shall be subject to cancellation, rescission, forfeiture, recovery, or other action in accordance with the terms of the Corporation’s Clawback Policy. The Corporation will have a right to cancel, rescind, or otherwise recover from such Participant for the benefit of the Corporation, and such Participant will be required to forfeit or repay to the Corporation the amount determined by the Administrators in accordance with the Clawback Policy.

 

6.6                               Termination: The Administrators may terminate this Plan at any time in their absolute discretion. If the Plan is so terminated, no further RSUs shall be awarded and no further Options shall be granted, but the Restricted Shares Units then outstanding and credited to Participants’ Accounts and the Options then outstanding shall continue in full force and effect in accordance with the provisions of this Plan.

 

6.7                               Transferability: A Participant shall not be entitled to transfer, assign, charge, pledge or hypothecate, or otherwise alienate, whether by operation of law or otherwise, the Participant’s RSUs or Options or any rights the Participant has under the Plan.

 

6.8                               Rights as a Shareholder: Under no circumstances shall the RSUs or Options be considered Common Shares nor shall they entitle any Participant to exercise voting rights or any other rights attaching to the ownership of Common Shares (including, but not limited to, the right to dividend equivalent payments).

 

6.9                               No Effect on Employment, Rights or Benefits:

 

(a)                                 The terms of employment shall not be affected by participation in the Plan.

 

(b)                                 Nothing contained in the Plan shall confer or be deemed to confer upon any Participant the right to continue as a director, officer, employee or Consultant nor interfere or be deemed to interfere

 

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in any way with any right of the Corporation, the Board or the shareholders of the Corporation to remove any Participant from the Board or of the Corporation or any Subsidiary to terminate any Participant’s employment or agreement with a Consultant at any time for any reason whatsoever.

 

(c)                                  Under no circumstances shall any person who is or has at any time been a Participant be able to claim from the Corporation or any Subsidiary any sum or other benefit to compensate for the loss of any rights or benefits under or in connection with this Plan or by reason of participation in this Plan.

 

6.10                        Market Value of Common Shares: The Corporation makes no representation or warranty as to the future market value of any Common Shares. No Participant shall be entitled, either immediately or in the future, either absolutely or contingently, to receive or obtain any amount or benefit granted to or to be granted for the purpose of reducing the impact, in whole or in part, of any reduction in the market value of the shares of the Corporation or a corporation related thereto.

 

6.11                        Compliance with Applicable Law:

 

(a)                                 If any provision of the Plan contravenes any law or any order, policy, by-law or regulation of any regulatory body having jurisdiction, then such provision shall be deemed to be amended to the extent necessary to bring such provision into compliance therewith. Notwithstanding the foregoing, the Corporation shall have no obligation to register any securities provided for in this Plan under the 1933 Act.

 

(b)                                 The award of RSUs, the grant of Options and the issuance of Common Shares under this Plan shall be carried out in compliance with applicable statutes and with the regulations of governmental authorities and the TSX. If the Administrators determine in their discretion that, in order to comply with any such statutes or regulations, certain action is necessary or desirable as a condition of or in connection with the award of an RSU, the grant of an Option or the issue of a Common Share upon the vesting of an RSU or exercise of an Option, as applicable, that RSU may not vest in whole or in part and that Option may not be exercised in whole or in part, as applicable, unless that action shall have been completed in a manner satisfactory to the Administrators. In addition, unless the RSUs, the Options and the Common Shares issuable pursuant to the RSUs and Options, as applicable, have been registered under the 1933 Act, all rights of a Participant under this Plan shall be subject to and conditioned upon the availability of exemptions or exclusions from the registration requirements of the 1933 Act, as determined by the Corporation in its sole discretion.

 

6.12                        Governing Law: This Plan shall be governed by and construed in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein.

 

6.13                        Subject to Approval: The Plan is adopted subject to the approval of the TSX and any other required regulatory approval. To the extent a provision of the Plan requires regulatory approval which is not received, such provision shall be severed from the remainder of the Plan until the approval is received and the remainder of the Plan shall remain in effect.

 

6.14                        Special Terms and Conditions Applicable to U.S. Participants: Options issued to U.S. Participants are intended to be exempt from Section 409A of the Code pursuant to Treas. Reg. Section 1.409A-1(b)(5)(i)(A) and the Plan and such Options will be construed and administered accordingly. RSUs awarded to U.S. Participants are intended to be exempt or to comply with Section 409A of the Code, to the extent it is applicable, and the Plan and RSU Agreements will be construed and administered accordingly. Although the Corporation intends Options and RSUs granted to U.S. Participants either to be exempt from Section 409A or to comply with it, the Corporation makes no representation or guaranty as to the tax treatment

 

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of such Options and RSUs. Each U.S. Participant (and any beneficiary or the estate of the Participant, as applicable) is solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on or for the account of such U.S. Participant in connection with this Plan. Neither the Corporation nor any affiliate, nor any employee or director of the Corporation or an affiliate, shall have any obligation to indemnify or otherwise hold such U.S. Participant, beneficiary or estate harmless from any or all such taxes or penalties.

 

ADOPTED the 8th day of June, 2020.

 

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EXHIBIT A

 

THE RSUS AND THE UNDERLYING COMMON SHARES HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”), AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES OR TO U.S. PERSONS UNLESS SUCH SECURITIES ARE REGISTERED UNDER THE 1933 ACT, OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE 1933 ACT ARE AVAILABLE. THE TERMS “UNITED STATES” AND “U.S. PERSON” ARE AS DEFINED IN REGULATION S UNDER THE 1933 ACT.

 

RSU AGREEMENT

 

Notice is hereby given that, effective this          day of                 ,            (the “RSU Grant Date”) Largo Resources Ltd. (the “Corporation”) has granted to                                             (the “Participant”),                RSUs pursuant to the Corporation’s Amended and Restated Share Compensation Plan dated effective June 8, 2020 (the “Plan”), a copy of which has been provided to the Participant.

 

RSUs are subject to the following terms:

 

(a)                                 Pursuant to the Plan and as compensation to the Participant, the Corporation hereby grants to the Participant, as of the RSU Grant Date, the number of RSUs set forth above.

 

(b)                                 The granting and vesting of the RSUs and the payment by the Corporation of any payout in respect of any Vested RSUs (as defined below) are subject to the terms and conditions of the Plan, this RSU Agreement, and the Receipt of Redemption Notice by the Corporation, all of which are incorporated into and form an integral part of this RSU Agreement.

 

(c)                                  [NTD: Vesting schedule is subject to change at the sole discretion of the Administrators] Provided the Participant does not experience an Event of Termination prior to the dates specified below, the RSUs shall become vested RSUs (the “Vested RSUs”) in accordance with the following schedule:

 

(i)                                     • on the 6 month anniversary of the RSU Grant Date;

 

(ii)                                  • on the 12 month anniversary of the RSU Grant Date;

 

(iii)                               • on the 18 month anniversary of the RSU Grant Date; and

 

(iv)                              • on the 24 month anniversary of the RSU Grant Date (each a “Vesting Date”).

 

(d)                                 Subject to subsection 4.3(a)(iii) as it applies to U.S. Participants, the Restriction Period, being the period during which a Redemption Notice may be delivered to the Corporation in respect of the RSU’s evidenced by this RSU Agreement, is [•].

 

(e)                                  As soon as reasonably practicable following the receipt by the Corporation of the Redemption Notice (but for U.S. Participants, no later than 60 days following the date on which the RSUs become vested as such term is defined in Section 4.3(a)(iii) ), or, if the Participant is not a U.S. Participant (as defined in the Plan), the Participant shall be entitled to receive, and the Corporation shall issue (or provide a payout) with respect to those Vested RSUs in the Participant’s Account to which the Vesting Date relates in the form of one (1) Common Share issued from treasury for each Vested RSU, subject to any applicable Withholding Obligations.

 

(f)                                   The Participant acknowledges that:

 

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(i)                                     he or she has received and reviewed a copy of the Plan; and

 

(ii)                                  the RSUs have been granted to the Participant under the Plan and are subject to all of the terms and conditions of the Plan to the same effect as if all of such terms and conditions were set forth in this RSU Agreement, including with respect to termination and forfeiture as set out in section 4.8 of the Plan.

 

Notwithstanding anything to the contrary in this RSU Agreement:

 

(a)                                 Subject to extension as provided under section 4.6 of the Plan, all vesting and issuances or payments, as applicable, in respect of an RSU evidenced hereby shall be completed no later than December 15 of the third calendar year commencing after the RSU Grant Date;

 

(b)                                 any RSU granted, or awarded to the Participant, and any Common Shares issued thereunder, and any amount received by the Participant with respect to any such RSU, shall be subject to cancellation, rescission, forfeiture, recovery, or other action in accordance with the terms of the clawback policy of the Corporation as it may be amended, replaced, or restated from time to time (the “Clawback Policy”). The Corporation will have a right to cancel, rescind, or otherwise recover from the Participant for the benefit of the Corporation, and the Participant will forfeit or repay to the Corporation the amount determined by the Administrators in accordance with the Clawback Policy. The Participant agrees and consents to the Corporation’s application, implementation and enforcement of (a) the Clawback Policy or any similar policy established by the Corporation that may apply to the Participant and (b) any provision of applicable law relating to cancellation, rescission, forfeiture, recovery, or other action, and expressly agrees that the Corporation may take such actions as are necessary to effectuate the Clawback Policy, any similar policy (as applicable to the Participant) or applicable law without further consent or action being required by the Participant. To the extent that the terms of this RSU Agreement and the Clawback Policy or any similar policy conflict, then the terms of such policy shall prevail.

 

The grant of the RSUs evidenced hereby is made subject to the terms and conditions of the Plan. The Participant agrees that he/she may suffer tax consequences as a result of the grant of these RSUs and the vesting of the RSUs. The Participant acknowledges that he/she is not relying on the Corporation for any tax advice and has had an adequate opportunity to obtain advice of independent tax counsel.

 

The Participant represents and warrants to the Corporation that under the terms and conditions of the Plan the Participant is a bona fide Eligible Person (as defined in the Plan) entitled to receive RSUs. The Corporation may condition awards and elections under the Plan upon receiving from the undersigned such representations and warranties and such evidence of registration or exemption under the 1933 Act as is satisfactory to the Corporation, acting in its sole discretion.

 

In the event of any inconsistency between the terms of this RSU Agreement and the Plan, the terms of the Plan shall prevail unless otherwise determined in the Plan.

 

LARGO RESOURCES LTD.

 

 

 

 

 

 

 

 

Authorized Signatory

 

Signature of Participant

 

 

 

 

 

 

 

 

Name of Participant

 

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EXHIBIT B

 

REDEMPTION NOTICE

 

TO: Largo Resources Ltd. (the “Corporation”)

 

Pursuant to the Corporation’s Amended and Restated Share Compensation Plan dated effective June 8, 2020 (the “Plan”) and the Participants RSU Agreement, the undersigned hereby elects to redeem:

 

[check one]

 

o            (a)                                                 of the undersigned’s vested RSUs; or

[insert number]

 

o            (b)                                 ALL  of the undersigned’s vested RSUs,

 

on                                         .

[insert date of redemption]

 

The undersigned hereby elects to redeem:

 

% of the vested RSUs by receiving the RSU Cash Equivalent, subject to the consent of the Administrators. The undersigned further confirms that, pursuant to section 4.4(d) of the Plan, the Participant instructs the Corporation to withhold and remit such RSU Cash Equivalent to the applicable taxation authorities on account of any Withholding Obligations of the Corporation.

 

All capitalized terms not defined in this Redemption Notice have the meaning set out in the Plan. No Common Shares shall at any time be issued or other compensation paid in respect of any RSUs which have been forfeited or terminated under the Plan or on account of damages relating to any RSUs which have been forfeited or terminated under the Plan.

 

The undersigned understands and agrees that the granting and redemption of these RSUs are subject to the terms and conditions of the Plan which is incorporated into and forms a part of this Redemption Notice.

 

DATED this       day of                 , 20   .

 

 

 

 Signature of Participant

 

 

 

 

 

 Name of Participant

 

 

C-19

 

EXHIBIT C

 

THE OPTIONS AND THE OPTIONED SHARES HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”), AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES OR TO U.S. PERSONS UNLESS SUCH SECURITIES ARE REGISTERED UNDER THE 1933 ACT, OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE 1933 ACT ARE AVAILABLE. THE TERMS “UNITED STATES” AND “U.S. PERSON” ARE AS DEFINED IN REGULATION S UNDER THE 1933 ACT.

 

OPTION AGREEMENT

 

Notice is hereby given that, effective this          day of                 ,            (the “Effective Date”) Largo Resources Ltd. (the “Corporation”) has granted to                                             (the “Participant”), Options to acquire                Common Shares (the “Optioned Shares”) up to 4:30 p.m. Pacific Time on the            day of                     ,            (the “Option Expiry Date”) at an exercise price of Cdn$             per Optioned Share pursuant to the Corporation’s Amended and Restated Share Compensation Plan dated effective June 8, 2020 (the “Plan”), a copy of which is attached hereto.

 

Optioned Shares may be acquired as follows:

 

(a)                                 [insert vesting provisions]; and

 

(b)                                 [insert hold period when required]. [NTD: Partially populate these sections consistent with the Plan and the anticipated online option exercise system]

 

The grant of the Options evidenced hereby and the Option Expiry Date thereof, is made subject to the terms and conditions of the Plan. The Participant agrees that he/she may suffer tax consequences as a result of the grant of these Options, the exercise of the Options and the disposition of Optioned Shares. The Participant acknowledges that he/she is not relying on the Corporation for any tax advice and has had an adequate opportunity to obtain advice of independent tax counsel.

 

Notwithstanding anything to the contrary in this Option Agreement, any Option granted to the Participant, and any Optioned Shares issued thereunder, and any amount received by the Participant with respect to any such Option or Optioned Shares, shall be subject to cancellation, rescission, forfeiture, recovery, or other action in accordance with the terms of the clawback policy of the Corporation as it may be amended, replaced, or restated from time to time (the “Clawback Policy”). The Corporation will have a right to cancel, rescind, or otherwise recover from such Participant for the benefit of the Corporation, and such Participant will be required to forfeit or repay to the Corporation the amount determined by the Administrators in accordance with the Clawback Policy. The Participant agrees and consents to the Corporation’s application, implementation and enforcement of (a) the Clawback Policy or any similar policy established by the Corporation that may apply to the Participant and (b) any provision of applicable law relating to cancellation, rescission, forfeiture, recovery, or other action, and expressly agrees that the Corporation may take such actions as are necessary to effectuate the Clawback Policy, any similar policy (as applicable to the Participant) or applicable law without further consent or action being required by the Participant. To the extent that the terms of this Option Agreement and the Clawback Policy or any similar policy conflict, then the terms of such policy shall prevail.

 

The Participant represents and warrants that under the terms and conditions of the Plan the Participant is a bona fide Eligible Person (as defined in the Plan) entitled to receive Options. The Participant understands that the Options may not be exercised in the United States or by or on behalf of a U.S. person unless the Options and the Option Shares have been registered under the 1933 Act or are exempt from registration thereunder. The Corporation may condition the exercise of the Options upon receiving from the Participant such representations and warranties and

 

C-20

 

such evidence of registration or exemption under the 1933 Act as is satisfactory to the Corporation, acting in its sole discretion.

 

In the event of any inconsistency between the terms of this Option Agreement and the Plan, the terms of the Plan shall prevail.

 

LARGO RESOURCES LTD.

 

 

 

 

 

 

 

 

Authorized Signatory

 

Signature of Participant

 

 

 

 

 

 

 

 

Name of Participant

 

C-21

 

EXHIBIT D

 

NOTICE OF OPTION EXERCISE

 

TO: Largo Resources Ltd..(the “Corporation”)

 

FROM:

 

DATE:

 

The undersigned hereby irrevocably gives notice, pursuant to the Corporation’s Amended and Restated Share Compensation Plan dated effective June 8, 2020 (the “Plan”), of the exercise of the Options to acquire and hereby subscribes for:

 

[check one]

 

o                                    (a)                                 all of the Optioned Shares (as defined in the Option Agreement); or

 

o                                    (b)                                                 of the Optioned Shares,

 

which are the subject of the Option Agreement attached hereto.

 

Calculation of total exercise price:

 

(i)

number of Optioned Shares to be acquired on exercise

                  Optioned Shares

 

 

 

(ii)

multiplied by the Exercise Price per Optioned Share:

$

 

 

 

TOTAL EXERCISE PRICE, enclosed herewith (unless this is a cashless exercise):

$

 

Unless this exercise form is accompanied by a written opinion of U.S. legal counsel or other evidence (each of which must be satisfactory to the Corporation, in its sole discretion) to the effect that the exercise of the Options and the issuance of the Optioned Shares upon such exercise is registered under or exempt from the registration requirements of the United States Securities Act of 1933, as amended (the “1933 Act”), I hereby represent and warrant to the Corporation that I am not in the United States or a U.S. person, and I am not acquiring the Optioned Shares for the account or benefit of a U.S. person or a person in the United States. The terms “United States” and “U.S. person” are as defined in Regulation S under the 1933 Act.

 

I hereby:

 

o                                    (a)                                 unless this is a cashless exercise, enclose a cheque payable to “Largo Resources Ltd.” for the aggregate Exercise Price plus the amount of the estimated Withholding Obligations and agree that I will reimburse the Corporation for any amount by which the actual Withholding Obligations exceed the estimated Withholding Obligations; or

 

o                                    (b)                                 advise the Corporation that I am exercising the above Options on a cashless exercise basis, in compliance with the procedures established from time to time by the Administrators for cashless exercises of Options under the Plan. I will consult with the Corporation to determine what additional documentation, if any, is required in connection with my cashless exercise of the above Options. I agree to comply with the procedures established by the Corporation for cashless exercises and all terms and conditions of the Plan. Please prepare the Optioned Shares certificates, if any, issuable in connection with this exercise in the following name(s):

 

C-22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Signature of Participant

 

 

 

 

 

Name of Participant

 

 

Letter and consideration/direction received on                 , 20      .

 

LARGO RESOURCES LTD.

 

 

 

 

By:

 

 

 

[Name]

 

 

[Title]

 

 

C-23

 

 

Corporate Office

55 University Avenue, Suite 1105

Toronto, ON Canada M5J 2H7

 

T: +1 416 861 9797

 

Investor Relations

Alex Guthrie

Manager, Investor Relations and Communications

 

T: +1 416 861 979797

E: info@largoresources.com

 

Transfer Agent
TMX Trust

100 Adelaide Street West

Suite 301

Toronto, ON M5H 4H1

 

T: +1 866 600 5869   +1 416 342 1091

E: TMXEInvestorServices@tmx.com

W: www.tsxtrust.com

 

Auditors

PricewaterhouseCoopers LLP

 

Legal Counsel

Gowling WLG (Canada) LLP

 

TSX LGO

OTCQX LGORF

 

www.largoresources.com
www.largoVPURE.com

 

Exhibit 99.22

 

GRAPHIC

 

LARGO RESOURCES LTD.

 

NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS

 

NOTICE IS HEREBY GIVEN that an annual and special meeting (the “Meeting”) of the holders of common shares (“Shares”) of Largo Resources Ltd. (“Largo”) will be held by way of live webcast on June 8, 2020 at 11:00 a.m. (Toronto time), for the following purposes:

 

1.                           to receive Largo’s audited consolidated financial statements for the years ended December 31, 2019 and 2018 and the auditor’s report thereon;

 

2.                          to elect the directors of Largo;

 

3.                          to appoint PricewaterhouseCoopers LLP as Largo’s auditors, to hold office until the next annual meeting of shareholders, and to authorize the directors to fix their remuneration;

 

4.                           to authorize and approve the Company’s Share Compensation Plan, including amendments thereto, and the unallocated entitlements issuable thereunder; and

 

5.                         to transact such further or other business as may properly come before the Meeting or any postponement(s) or adjournment(s) thereof.

 

The specific details of the matters to be considered at the Meeting are set forth in the accompanying management information circular.

 

Due to restrictions relating the Global COVID-19 pandemic, and to mitigate risks to the health and safety of our communities, shareholders, employees and other stakeholders, Largo is holding the Meeting as a completely virtual meeting, which will be conducted via live webcast, where all shareholders regardless of geographic location and equity ownership will have an equal opportunity to participate at the Meeting and engage with Largo as well as other shareholders. Shareholders will not be able to attend the Meeting in person.

 

Registered shareholders (being shareholders who hold their Shares directly, registered in their own names) and duly appointed proxyholders will be able to attend, participate and vote at the Meeting online at htt ps:// web.lumiagm.com/233009732. Non-registered shareholders (being shareholders who hold their Shares through a broker, investment dealer, bank, trust company, custodian, nominee or other intermediary) who have not duly appointed themselves as proxyholder will be able attend the Meeting as guests, however they will not be able to vote at the Meeting.

 

As a shareholder of Largo, it is very important that you read the accompanying management information circular dated May 1, 2020 (the “Circular”) and other Meeting materials carefully. They contain important information with respect to voting your Shares and attending and participating at the Meeting.

 

A shareholder who wishes to appoint a person other than the management nominees identified on the form of proxy or voting instruction form, to represent him, her or it at the Meeting may do so by inserting such person’s name in the blank space provided in the form of proxy or voting instruction form and following the instructions for submitting such form of proxy or voting instruction form. This MUST be completed prior to registering such proxyholder, which is an additional

 

 

step to be completed once you have submitted your form of proxy or voting instruction form. If you wish that a person other than the management nominees identified on the form of proxy or voting instruction form attend and participate at the Meeting as your proxy and vote your Shares, including if you are a non-registered shareholder and wish to appoint yourself as proxyholder to attend, participate and vote at the Meeting, you MUST register such proxyholder after having submitted your form of proxy or voting instruction form identifying such proxyholder by 11:00 a.m. (Toronto time) on June 4, 2020. Failure to register the proxyholderwill result in the proxyholder not receiving a Username to participate in the Meeting. Without a Username, proxyholders will not be able to attend, participate or vote at the Meeting. In order to register a proxyholder, whether yourself or a third party, shareholders MUST email TSX Trust Company (“TSX Trust”) at tmxeinvestorservices@t mx.com with their proxyholder’s contact information, so that TSX Trust may provide the proxyholder with a Username via email.

 

If you are a registered shareholder and are unable to attend the Meeting online please date and execute the accompanying form of proxy and return it in the envelope provided to TSX Trust, Largo’s transfer agent, at 100 Adelaide Street W., Ste. 301, Toronto, ON, MSH 4Hl by no later than 11:00 a.m. (Toronto time) on June 4, 2020 or48 hours (excluding Saturdays, Sundays and holidays) before any postponement or adjournment of the Meeting.

 

If you are not a registered shareholder and receive these materials through your broker or through another intermediary, please complete and return the form of proxy in accordance with the instructions provided to you by your broker or by the other intermediary.

 

Largo’s directors have fixed May 1, 2020 as the record date. Holders of Shares at the close of business on May 1, 2020 are entitled to receive notice of and to vote at the Meeting or any postponement(s) or adjournment(s) thereof.

 

DATED at Toronto, Ontario this 1st day of May, 2020.

 

By Order of the Board of Directors

 

(Signed) “Paulo Misk”

 

Director and Chief Executive Officer

 

 

Exhibit 99.23

 

FORM 52-109F2

 

CERTIFICATION OF INTERIM FILINGS

FULL CERTIFICATE

 

I, Paulo Misk, Chief Executive Officer of LARGO RESOURCES LTD., certify the following:

 

1.                                      Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of LARGO RESOURCES LTD. (the “issuer”) for the interim period ended March 31, 2020.

 

2.                                      No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

 

3.                                      Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

 

4.                                      Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

 

5.                                      Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings

 

(a)                                 designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

 

(i)                                     material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

 

(ii)                                  information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

 

(b)                                 designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

 

5.1                               Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Internal Control — Integrated Framework (2013 COSO Framework) published by The Committee of Sponsoring Organizations of the Treadway Commission.

 

5.2                               ICFR - material weakness relating to design: N/A

 

5.3                               Limitation on scope of design: N/A

 

 

6.                                      Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on January 1, 2020 and ended on March 31, 2020 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

 

Date: May 12, 2020

 

 

 

/s/ Paulo Misk

 

Paulo Misk

 

Chief Executive Officer

 

 

2

Exhibit 99.24

 

FORM 52-109F2

 

CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE

 

I, Ernest Cleave, Chief Financial Officer of LARGO RESOURCES LTD., certify the following:

 

1.                                      Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of LARGO RESOURCES LTD. (the “issuer”) for the interim period ended March 31, 2020.

 

2.                                      No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

 

3.                                      Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

 

4.                                      Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

 

5.                                      Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings

 

(a)                                 designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

 

(i)                                     material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

 

(ii)                                  information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

 

(b)                                 designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

 

5.1                               Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Internal Control — Integrated Framework (2013 COSO Framework) published by The Committee of Sponsoring Organizations of the Treadway Commission.

 

5.2                               ICFR - material weakness relating to design: N/A

 

5.3                               Limitation on scope of design: N/A

 

 

6.                                      Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on January 1, 2020 and ended on March 31, 2020 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

 

Date: May 12, 2020

 

 

 

/s/ Ernest Cleave

 

Ernest Cleave

 

Chief Financial Officer

 

 

2

Exhibit 99.25

 

GRAPHIC

 

PRESS RELEASE

May 12, 2020

 

Largo Resources Reports Solid Q1 2020 Results with Net Income of $5.7 Million and
Maintains Strong Liquidity Position

 

All financial figures are in Canadian dollars unless otherwise stated.

 

Q1 2020 Highlights

 

·                  Net income of $5.7 million and basic earnings per share of $0.01

 

·                  Cash operating costs excluding royalties(1) of US$2.79 ($3.69) per lb of V2O5, a decrease of 18% over Q1 2019

 

·                  Production of 2,831 tonnes (6.2 million pounds(2)) of V2O5, a 35% increase over Q1 2019

 

·                  V2O5 sales of 3,170 tonnes, a 51% increase over Q1 2019

 

·                  Revenues of $58.2 million (after a positive re-measurement of trade receivables / payables of $2.4 million on vanadium sales from a contract with a customer of $55.8 million), an increase of 31% over Q1 2019

 

·                  Cash balance of $206.1 million exiting Q1 2020

 

·                  Commercial independence: Over 85% committed on annual guided sales for 2020

 

·                  COVID-19 Update: The Maracás Menchen Mine continued operations during Q1 2020 and the Company is maintaining it’s 2020 guidance on a “business as usual” basis

 

·                  Q1 2020 operational and financial results conference call: Wednesday, May 13th, 2020 at 10:00 a.m. EST

 

TORONTO - Largo Resources Ltd. (“Largo” or the “Company”) (TSX: LGO) (OTCQX: LGORF) is pleased to report its first quarter 2020 results highlighted by net income of $5.7 million or basic earnings per share of $0.01, cash operating costs excluding royalties(1) of US$2.79 per pound V2O5, and vanadium pentoxide (“vanadium” or “V2O5”) production of 2,831 tonnes.

 

Paulo Misk, President and Chief Executive Officer for Largo, stated: “Despite production impacts during the quarter, I am pleased to report the Company generated net income of $5.7 million in Q1 2020 following a new quarterly sales record of 3,170 tonnes of V2O5. The Company also performed well on a unit cost basis, achieving a cash operating cost excluding royalties(1) of US$2.79 per pound in Q1 2020 — a decrease of 18% over Q1 2019. Our financial position continues to remain solid with a cash balance of US$147.5 million ($204.6 million) as of April 30, 2020 and a final revenue adjustment payable of US$64.4 million due to the Company’s former off-take partner. Following the offset against receivable amounts due to the Company, we expect the net trade payables payment of US$57.4 million will be settled between May 15 and 25, 2020. The Company is also evaluating the timing for the construction of the ferrovanadium conversion plant, including the deferral of planned 2020 capital expenditures due to precautionary measures associated with our employees and contractors in light of COVID-19.”

 

 

He continued: “I am also very pleased to report that Largo has commenced full commercial control of its vanadium output following the expiration of the Company’s off-take agreement on April 30, 2020. The Company’s sales and trading team continues its dedication to the promotion and sales of Largo’s products and have committed over 85% of the Company’s annual guided sales for 2020. This strategic transition marks a transformative moment in Largo’s history and we expect our commercial independence will prove beneficial both economically and strategically going forward. Largo is now an even more important player in the global vanadium industry and we look to continue maximizing value for all of our shareholders as the industry preferred producer and supplier of vanadium.”

 

A summary of the operational and financial performance for Q1 2020 is provided in the tables below:

 

Financial

 

 

 

Three months ended

 

 

 

March 31,
2020

 

March 31,
2019

 

Revenues

 

$

58,186

 

$

44,314

 

Operating costs

 

(36,423

)

(29,071

)

Direct mine and mill costs

 

(24,288

)

(19,464

)

Net income before tax

 

5,092

 

1,414

 

Income tax expense

 

—

 

(1,114

)

Deferred income tax expense

 

642

 

(2,468

)

Net income (loss)

 

5,734

 

(2,168

)

Basic earnings (loss) per share

 

0.01

 

(0.00

)

Diluted earnings (loss) per share

 

0.01

 

(0.00

)

 

 

 

 

 

 

Cash provided before non-cash working capital items

 

$

11,634

 

$

21,688

 

Net cash provided by operating activities

 

11,622

 

95,416

 

Net cash provided by (used in) financing activities

 

35,770

 

(92,359

)

Net cash (used in) investing activities

 

(4,424

)

(8,202

)

Net change in cash

 

40,060

 

(15,488

)

 

 

 

As at

 

 

 

March 31,
2020

 

December 31,
2019

 

Cash

 

$

206,137

 

166,077

 

Revenue adjustment payable(3)

 

91,933

 

95,683

 

Working capital(4)

 

116,742

 

102,013

 

 

2

 

Operational

 

Maracás Menchen Mine Production

 

 

 

Q1 2020

 

Q1 2019

 

Total Ore Mined (tonnes)

 

 

 

203,966

 

250,109

 

Ore Grade Mined - Effective Grade(5) (%)

 

 

 

1.61

 

1.29

 

 

 

 

 

 

 

 

 

Effective Grade of Ore Milled(5) (%)

 

 

 

1.59

 

1.51

 

Concentrate Produced (tonnes)

 

 

 

100,072

 

86,673

 

Grade of Concentrate (%)

 

 

 

3.36

 

3.32

 

Contained V2O5 (tonnes)

 

 

 

3,365

 

2,874

 

 

 

 

 

 

 

 

 

Crushing Recovery (%)

 

 

 

98.3

 

97.0

 

Milling Recovery (%)

 

 

 

98.4

 

96.8

 

Kiln Recovery (%)

 

 

 

88.3

 

89.2

 

Leaching Recovery (%)

 

 

 

96.6

 

97.7

 

Chemical Plant Recovery (%)

 

 

 

96.8

 

97.7

 

Global Recovery(6) (%)

 

 

 

79.9

 

80.0

 

 

 

 

 

 

 

 

 

V2O5 produced (Flake + Powder) (tonnes)

 

 

 

2,831

 

2,099

 

V2O5 produced (equivalent pounds)(2)

 

 

 

6,241,279

 

4,627,497

 

Cash operating costs excluding royalties(1) per pound produced

 

CAD$

 

$

3.69

 

$

4.54

 

 

 

US$(7)

 

$

2.79

 

$

3.41

 

Total cash costs(1)

 

CAD$

 

$

3.97

 

 

 

 

 

US$(7)

 

$

3.01

 

 

 

Revenues per pound sold(8)

 

CAD$

 

$

8.33

 

$

9.57

 

 

 

US$(7)

 

$

6.31

 

$

7.19

 

Vanadium sales per pound sold(8)

 

CAD$

 

$

7.99

 

$

21.90

 

 

 

US$(7)

 

$

6.05

 

$

16.46

 

 

First Quarter 2020 Financial Results

 

The Company reported net income of $5.7 million in Q1 2020 compared to a net loss of $2.2 million in Q1 2019. This movement was primarily due to an increase in revenues, a decrease in finance costs and a decrease in the total tax expense. This was partially offset by an increase in operating costs and an increase in the foreign exchange loss.

 

Total sales of V2O5 in Q1 2020 were 3,170 tonnes (including 340 tonnes of high purity V2O5) compared to 2,100 (including 440 tonnes of high purity V2O5) tonnes sold in Q1 2019. This represents an increase of 51% and a new quarterly sales record for the Company.

 

The Company recognized revenues of $58.2 million in Q1 2020 after a positive re-measurement of trade receivables / payables of $2.4 million under the Glencore contract. This compares with revenues of $44.3 million in Q1 2019 and represents an increase of 31%. Revenues per pound sold(8) in Q1 2020 were $8.33 (US$6.31) compared with $9.57 (US$7.19) per pound in Q1 2019.

 

Vanadium sales from a contract with a customer was $55.8 million in Q1 2020, compared with $101.4 million in Q1 2019. Vanadium sales per pound sold(8) in Q1 2020 was $7.99 (US$6.05) compared to $21.90 (US$16.46) per pound in Q1 2019. This decrease is primarily attributable to a decrease in the V2O5 price, with the average price per lb of V2O5 of approximately US$6.07 for Q1 2020, compared with approximately US$16.34 for Q1 2019.

 

 

 

Three months ended

 

 

 

March 31,
2020

 

March 31,
2019

 

Vanadium sales from a contract with a customer

 

$

55,809

 

101,403

 

Vanadium sales per pound sold(8) ($/lb)

 

$

7.99

 

21.90

 

Vanadium sales per pound sold(8) (US$/lb)

 

$

6.05

 

16.46

 

Re-measurement of trade receivables / payables

 

$

2,377

 

(57,089

)

Revenue adjustment per pound(9) ($/lb)

 

$

0.28

 

(10.32

)

Revenue adjustment per pound(9) (US$/lb)

 

$

0.21

 

(7.75

)

Revenues

 

$

58,186

 

44,314

 

Revenues per pound sold(8) ($/lb)

 

$

8.33

 

9.57

 

Revenues per pound sold(8) ($US/lb)

 

$

6.31

 

7.19

 

 

3

 

As a consequence of the increase in the V2O5 price since Q4 2019 and the positive revenue adjustment per pound(9) realized in Q1 2020, the Company’s trade payables balance at March 31, 2020 was $75.8 million and the Company’s revenue adjustment payable(9) was US$64.8 million ($91.9 million). The Company’s revenue adjustment payable(9) at April 30, 2020 was US$64.4 million ($89.3 million).

 

Operating costs for Q1 2020 were $36.4 million compared to $29.1 million in Q1 2019 and include direct mine and mill costs of $24.3 million ($19.5 million in Q1 2019), depreciation and amortization of $8.9 million ($7.3 million in Q1 2019) and royalties of $3.2 million ($2.3 million in Q1 2019). The increase in direct mine and mill costs is primarily attributable to the increase in production and sales during the quarter.

 

Cash operating costs excluding royalties(1), which are now calculated on pounds sold, were US$2.79 ($3.69) per pound in Q1 2020 compared to US$3.41 ($4.54) in Q1 2019, representing a decrease of 18%. The decrease seen in Q1 2020 compared with Q1 2019 is largely due to the increased sales and was partially offset by a slight decrease in the global recovery(6) level to 79.9% from 80.0% in Q1 2019.

 

For Q1 2020, total cash costs(1) were US$3.01 ($3.97). Total cash costs(1) are calculated on pounds sold, exclude royalties and include the Company’s total professional, consulting and management fees and other general and administrative expenses.

 

Cash provided by operating activities decreased from Q1 2019 by $83.8 million. This is primarily due to the total change in amounts receivable and accounts payable of $80.2 million in Q1 2019 when the Company’s trade receivables were first classified as trade payables. Revenues exceeded direct mine and mill costs and royalties by $30.7 million in Q1 2020, compared with $22.5 million in Q1 2019.

 

In March 2020, the Company secured two credit facilities in Brazil, for a total of US$24.8 million. These facilities were fully drawn down and are due for repayment as a lump sum, together with accrued interest, in March 2021. Cash provided by financing activities changed from cash used in Q1 2019 by $128.1 million and is primarily due to the receipt of funds from the credit facilities and the repayment of the Company’s Senior Secured Notes in Q1 2019. In addition, $1.7 million was received in Q1 2020 from the issuance of shares compared to $0.4 million in Q1 2019.

 

The Company’s foreign exchange loss in Q1 2020 increased by $11.9 million over Q1 2019 and is primarily attributable to a strengthening of the U.S. dollar against the Brazilian real by approximately 29% since December 31, 2019 on U.S. dollar denominated costs and liabilities. This was partially offset by a strengthening of the U.S. dollar against the Canadian dollar by approximately 9% since December 31, 2019 on U.S. dollar denominated assets.

 

4

 

First Quarter 2020 Operational Results

 

Total production in Q1 2020 from the Maracás Menchen Mine was 2,831 tonnes of V2O5 representing an increase of 35% over Q1 2019. Production in Q1 2020 was impacted by hot spots in the cooler’s shell, which required stoppages for maintenance on the refractory. In January 2020, 956 tonnes of V2O5 was produced, with 915 tonnes produced in February and 960 tonnes in March.

 

The Q1 2020 global V2O5 recovery(6) of 79.9% is in line with both Q1 2019 and the budget, with strong recovery levels seen in both the crushing and milling areas of the plant.

 

In Q1 2020, 203,966 tonnes of ore were mined with an effective grade(5) of 1.61% of V2O5 and the Company produced 100,072 tonnes of concentrate with an effective grade(5) of 3.36%. The decrease in total ore mined when compared to Q1 2019 is due to operational adjustments to limit the mine site contractor workforce during the COVID-19 pandemic as well as operational restrictions due to the rainy season. The Company used available stocks to feed the crushing plant in order to mitigate the impact on V2O5 production.

 

The annual kiln and cooler shutdown to replace the refractory and the planned improvements to the kiln and cooler to increase capacity that was scheduled for April 2020 have been deferred to later in 2020 as a result of precautionary measures taken by the Company in light of the COVID-19 pandemic. This work is not expected to have an impact on the Company’s production. The Company instead performed an enhanced preventative maintenance program in the chemical plant for approximately 15 days and, as a result, production in April 2020 was 480 tonnes of V2O5.

 

Commercial Independence Achieved: Internal Sales and Trading Business Proven Successful

 

·                  Over 85% committed on annual guided sales for 2020

·                  Sales and trading team fully operational out of its two commercial offices in Dublin, Ireland and Washington DC, USA

·                  The Company announced the launch of VPURE™ and VPURE+™, newly developed brands for the Company’s vanadium products in January 2020

 

Following the election by the Company on August 20, 2019, the Company’s off-take agreement with Glencore International AG expired on April 30, 2020. The Company has assembled a very strong commercial team who have committed approximately 85% of the Company’s annual guided sales for 2020. The Company expects the balance of production will be sold in the spot market and be used to build safety stocks in strategic regional hubs. The Company also expects Q2 2020 to be a transition quarter where sales will be lower and inventory may increase mainly due to a longer period of time between production and revenue recognition as compared to terms under our previous off-take agreement. The Maracás Menchen Mine has a proven track record of premium product quality and operational stability, which allows the Company to provide its customers with a reliable source of vanadium pentoxide for the global steel and high purity markets. As a result of the downturn in global demand within the aerospace industry due to the COVID-19 pandemic, the Company anticipates lower high purity V2O5 sales during the 2020. The Company does not expect this to impact its total guided V2O5 sales for 2020.

 

5

 

2020 Guidance Maintained — Additional Precautionary Measures Taken due to COVID-19

 

The Company continues to maintain it’s 2020 guidance on a “business as usual” basis. The Company’s guidance is highly dependent on there being no disruptions or interruptions to the Company’s supply chain and logistics, which are critical to the Company’s operations and sales. Notwithstanding the Company’s production, cost and sales guidance for 2020, the Company is conscious of the rapid expansion of the COVID-19 pandemic and the evolving measures being imposed by governments globally to reduce its spread and the impact that this may have on the Company’s guidance. To date, the restrictions imposed by the government in Brazil have not significantly impacted the Company’s operations but the potential future impact of these restrictions and other restrictions globally on the Company’s operations, sales efforts and logistics is unknown but could be significant. The Brazilian government has declared mining operations, including activities of mining, ore treatment, production, sales, transportation and the supply of mineral goods as essential to the country. These activities are considered essential by the federal government and will continue despite local government restrictions on business activity and the circulation of people.

 

The Company is continuing to monitor the rapidly developing impacts of the COVID-19 pandemic and will take all possible actions to help minimize the impact on the Company and its people. In light on this, the Company is evaluating the timing for the construction of the ferrovanadium conversion plant, including the deferral of planned 2020 capital expenditures. This deferral will not impact the Company’s commercial strategy in 2020. Further, precautionary measures regarding COVID-19 has caused delays in the start of the Company’s 2020 drilling program and work will commence as soon as the drill contractor and the Company are able to mobilise people and equipment to the mine site based on government recommendations and policy and safety concerns for mine site personnel and contractors.

 

The Company continues the necessary work required for the construction of its V2O3 processing plant which is expected to commence in Q1 2021. The Company’s V2O3 processing plant at the Maracás Menchen Mine is expected to increase its sales in the high purity aerospace market, chemical industry and vanadium electrolyte used for vanadium redox flow batteries. The Company expects the ramp up and commissioning of the plant to conclude in Q3 2021 and total capital expenditures to be in the range of approximately US$10.0 to 11.0 million, with US$8.0 to $10.0 million being incurred in 2020.

 

Change in Company’s Denominated Currency

 

In connection with the Company managing its own sales activities, the Company and a number of its subsidiaries will generate U.S. dollar denominated revenues and incur U.S. dollar denominated costs from May 1, 2020 onwards. Considering the significance of these revenues and costs to the Company’s activities, the Company determined that the currency of the primary economic environment in which three of the Company’s entities operate will change to the U.S. dollar on May 1, 2020.

 

Virtual Annual and Special Meeting of Shareholders

 

Due to restrictions relating the global COVID-19 pandemic, and to mitigate risks to the health and safety of our communities, shareholders, employees and other stakeholders, the Company is holding its Annual and Special Meeting of Shareholders (the “Meeting”) as a completely virtual meeting. The Meeting will be held by way of live webcast on June 8, 2020 at 11:00 a.m. and the specific details of the matters to be considered at the Meeting,

 

6

 

including specific instructions to  access the webcast are set forth in the Company’s management information circular which is available online and accessible on the Company’s website within the Investor section or via the Company’s SEDAR profile. Registered shareholders and duly appointed proxyholders will be able to attend, participate and vote at the Meeting while non-registered shareholders (being shareholders who hold their shares through a broker, investment dealer, bank, trust company, custodian, nominee or other intermediary) will be able attend the Meeting as guests and participate, however they will not be able to vote at the Meeting. Largo intends to resume its normal practice of holding in-person meetings and expects that it will do so for its next annual meeting to be held in 2021.

 

Conference Call

 

Largo Resources management will host a conference call on Wednesday, May 13, 2020, at 10:00 a.m. EST, to discuss the Company’s first quarter 2020 operational and financial results.

 

Conference Call Details:

 

Date:

Wednesday, May 13, 2020

Time:

10:00 a.m. EST

Dial-in Number:

Local / International: +1 (416) 764-8688

 

North American Toll Free: (888) 390-0546

 

Brazil Toll Free:  08007621359

Conference ID:

80011471

Replay Number:

Local / International: + 1 (416) 764-8677

 

North American Toll Free: (888) 390-0541

 

Replay Passcode: 011471#

Website:

To view press releases or any additional financial information, please visit our Investor Relations section of the Largo Resources website at: www.largoresources.com/investors

 

A playback recording will be available on the Company’s website for a period of 60-days following the conference call.

 

The information provided within this release should be read in conjunction with Largo’s unaudited condensed interim consolidated financial statements for the three months ended March 31, 2020 and 2019 and its management’s discussion and analysis for the three ended March 31, 2020, which are available on our website at www.largoresources.com and on SEDAR.


About Largo Resources

 

Largo Resources is an industry preferred producer and supplier of vanadium. Largo’s VPURE™ and VPURE+™ products are sourced from one of the world’s highest-grade vanadium deposits at the Maracás Menchen Mine located in Brazil. The Company’s common shares are principally listed on the Toronto Stock Exchange under the symbol “LGO”. For more information on Largo and VPURE™, please visit www.largoresources.com and www.largoVPURE.com.

 

7

 

Neither the Toronto Stock Exchange (nor its regulatory service provider) accepts responsibility for the adequacy or accuracy of this release.

 

CONTACT INFORMATION:

 

For more information, please contact:

 

Alex Guthrie
Manager, Investor Relations and Communications
info@largoresources.com

416-861-9797

 

Forward Looking Information

 

This press release contains forward-looking information under Canadian securities legislation, some of which may be considered “financial outlook” for the purposes of application Canadian securities legislation (“forward-looking statements”). Forward-looking information in this press release includes, but is not limited to, statements with respect to the timing and amount of estimated future production and sales; costs of future activities and operations; the extent of capital and operating expenditures; and the extent and overall impact of the COVID-19 pandemic in Brazil and globally. Forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. All information contained in this news release, other than statements of current and historical fact, is forward looking information. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Largo to be materially different from those expressed or implied by such forward-looking statements, including but not limited to those risks described in the annual information form of Largo and in its public documents filed on SEDAR from time to time. Forward-looking statements are based on the opinions and estimates of management as of the date such statements are made. Although management of Largo has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Largo does not undertake to update any forward-looking statements, except in accordance with applicable securities laws. Readers should also review the risks and uncertainties sections of Largo’s annual and interim MD&As which also apply.

 

Non-GAAP(10) Measures

 

The Company uses certain non-GAAP financial performance measures in its press release which are described in the following section and can be found in its Management’s Discussion and Analysis for the three months ended March 31, 2020.

 

8

 

Revenues Per Pound

 

The Company’s press release refers to revenues per pound sold, including vanadium sales per pound sold and revenue adjustment per pound sold.  These are non-GAAP performance measures and are used to provide investors with information about key measures used by management to monitor performance of the Maracás Menchen Mine.

 

These measures, along with cash operating costs per pound produced, are considered to be one of the key indicators of the Company’s ability to generate operating earnings and cash flow from its Maracás Menchen Mine. These revenues per pound measures do not have any standardized meaning prescribed by IFRS and differ from measures determined in accordance with IFRS. These measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These measures are not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.

 

The following tables provide a reconciliation of these measures per pound sold for the Maracás Menchen Mine to revenues as per the Q1 2020 unaudited condensed interim consolidated financial statements.

 

 

 

Three months ended

 

 

 

March 31,
2020

 

March 31,
2019

 

Revenues(i)

 

$

58,186

 

$

44,314

 

V2O5 sold (000s lb)

 

6,989

 

4,630

 

Revenues per pound sold ($/lb)

 

$

8.33

 

$

9.57

 

Revenues per pound sold (US$/lb)(ii)

 

$

6.31

 

$

7.19

 

 

 

 

 

 

 

Vanadium sales from a contract with a customer(i)

 

$

55,809

 

$

101,403

 

V2O5 sold (000s lb)

 

6,989

 

4,630

 

Vanadium sales per pound sold ($/lb)

 

$

7.99

 

$

21.90

 

Vanadium sales per pound sold (US$/lb)(ii)

 

$

6.05

 

$

16.46

 

 

 

 

 

 

 

Re-measurement of trade receivables / payables(i)

 

$

2,377

 

$

(57,089

)

V2O5 sold subject to re-measurement (000s lb)

 

8,598

 

5,534

 

Revenue adjustment per pound ($/lb)

 

$

0.28

 

$

(10.32

)

Revenue adjustment per pound (US$/lb)(ii)

 

$

0.21

 

$

(7.75

)

 

(i)            As per note 19 of the Company’s unaudited, condensed interim consolidated financial statements for the three months ended March 31, 2020 and 2019.

(ii)        Calculated from “$/lb” using average $/US$ foreign exchange rates of 1.32 and 1.33 for Q1 2020 and Q1 2019, respectively.

 

Cash Operating Costs Per Pound

 

The Company’s press release refers to cash operating costs per pound, a non-GAAP performance measure, in order to provide investors with information about a key measure used by management to monitor performance. This information is used to assess how well the Maracás Menchen Mine is performing compared to plan and prior periods, and also to assess its overall effectiveness and efficiency.

 

Cash operating costs includes mine site operating costs such as mining costs, plant and maintenance costs, sustainability costs, mine and plant administration costs, royalties and sales, general and administrative costs (all for the mine properties segment), but excludes depreciation and amortization, share-based payments, foreign exchange gains or losses, commissions, reclamation, capital expenditures and exploration and evaluation costs.  These costs are then divided by the pounds of vanadium sold from the Maracás Menchen Mine to arrive at the cash operating costs per pound. Prior to 2020, these costs were divided by the pounds of production from the Maracás Menchen Mine, rather than pounds sold. These periods have been recalculated using pounds sold in the following table. This measure differs to the new total cash costs non-GAAP measure the Company will use to measure its performance starting in 2020 (see later in this section).

 

These measures, along with revenues, are considered to be one of the key indicators of the Company’s ability to generate operating earnings and cash flow from its Maracás Menchen Mine. These cash operating costs measures do not have any standardized meaning prescribed by IFRS and differ from measures determined in accordance with IFRS. These measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of

 

9

 

 performance prepared in accordance with IFRS. These measures are not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.

 

In addition, the Company’s press release refers to cash operating costs excluding royalties. This is a non-GAAP performance measure and is calculated as cash operating costs less royalties, as disclosed in the following table.

 

The following table provides a reconciliation of cash operating costs per pound for the Maracás Menchen Mine to operating costs as per the Q1 2020 unaudited condensed interim consolidated financial statements.

 

 

 

Three months ended

 

 

 

March 31,
2020

 

March 31,
2019

 

Operating costs(i)

 

$

36,423

 

$

29,071

 

Professional, consulting and management fees(ii)

 

1,159

 

1,270

 

Other general and administrative expenses(ii)

 

329

 

268

 

Less: depreciation and amortization expense(i)

 

(8,933

)

(7,281

)

Cash operating costs

 

$

28,978

 

$

23,328

 

Less: royalties(i)

 

(3,202

)

(2,326

)

Cash operating costs excluding royalties

 

$

25,776

 

$

21,002

 

V2O5 sold (000s lb)(3)

 

6,989

 

4,630

 

Cash operating costs per pound ($/lb)(iii)

 

$

4.15

 

$

5.04

 

Cash operating costs per pound (US$/lb)(iii), (iv)

 

US$

3.14

 

US$

3.79

 

Cash operating costs excluding royalties per pound ($/lb)(iii)

 

$

3.69

 

$

4.54

 

Cash operating costs excluding royalties per pound (US$/lb)(iii), (iv)

 

US$

2.79

 

US$

3.41

 

 

(i)            As per note 20 of the Company’s unaudited, condensed interim consolidated financial statements for the three months ended March 31, 2020 and 2019.

(ii)        As per the Mine properties segment in note 16.

(iii)    Cash operating costs per pound and cash operating costs excluding royalties per pound for Q1 2019 were previously calculated and presented on a pounds produced basis (V2O5 produced (000s lb) = 4,627; V2O5 sold (000s lb) = 4,630). These measures have been calculated and presented on a pounds sold basis in this press release, with no difference in the amounts calculated.

(iv)      Calculated from “$/lb” using average $/US$ foreign exchange rates of 1.32 and 1.33 for Q1 2020 and Q1 2019, respectively.

 

Total Cash Costs

 

The Company’s press release refers to total cash costs, a non-GAAP performance measure, in order to provide investors with information about a key measure used by management to monitor performance. This information is used to assess how well the Company is performing at producing and selling vanadium products compared to plan and prior periods, and also to assess its overall effectiveness and efficiency.

 

Total cash costs are a non-GAAP performance measure that includes mine site operating costs (as for cash operating costs), sales and distribution costs and the Company’s total professional, consulting and management fees and other general and administrative expenses. Total cash costs exclude royalties, depreciation and amortization, share-based payments, foreign exchange gains or losses, commissions, reclamation costs, exploration and evaluation costs and capital expenditures. These costs are then divided by the pounds of vanadium sold by the Company to arrive at total cash costs.

 

This measure differs from cash operating costs per pound in that it includes all sales and distribution costs, professional, consulting and management fees and other general and administrative expenses, rather than just those from the Mine properties segment, and is calculated on pounds sold rather than pounds produced. The Company believes this will be a more accurate reflection of its unit costs given the anticipated difference between pounds produced and pounds sold after the end of the Company’s off-take agreement on April 30, 2020.

 

This total cash costs measure does not have any standardized meaning prescribed by IFRS and differs from measures determined in accordance with IFRS. This measure is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. This measure is not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.

 

10

 

The following table provides a reconciliation of total cash costs to operating costs as per the Q1 2020 unaudited condensed interim consolidated financial statements.

 

 

 

Three months ended

 

 

 

March 31,
2020

 

Operating costs(i)

 

$

36,423

 

Professional, consulting and management fees(ii)

 

2,289

 

Other general and administrative expenses(ii)

 

1,175

 

Less: depreciation and amortization expense(i)

 

(8,933

)

Less: royalties(i)

 

(3,202

)

 

 

$

27,752

 

V2O5 sold (000s lb)

 

6,989

 

Total cash costs ($/lb)

 

$

3.97

 

Total cash costs (US$/lb)(3)

 

US$

3.01

 

 

(i)            As per note 20 of the Company’s unaudited, condensed interim consolidated financial statements for the three months ended March 31, 2020 and 2019.

(ii)        As per the condensed interim consolidated statement of income (loss) and comprehensive income (loss).

(iii)    Calculated from “$/lb” using average $/US$ foreign exchange rate of 1.32 for Q1 2020.

 

Revenue Adjustment Payable

 

The Company’s press release refers to revenue adjustment payable, a non-GAAP performance measure used to provide investors with information about a key measure used by management as part of its monitoring of the financial liquidity of the Company.

 

This measure is considered to be one of the key components monitored relating to the Company’s projected financial liquidity and capital resources. This revenue adjustment payable does not have any standardized meaning prescribed by IFRS and differs from measures determined in accordance with IFRS. This measure is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance, financial liquidity or capital resources prepared in accordance with IFRS. This measure is not necessarily indicative of cash flow from operating activities or disclosed commitments as determined and presented under IFRS.

 

The following table provides a reconciliation of this measure to trade receivables / payables as per the Q1 2020 unaudited condensed interim consolidated financial statements.

 

 

 

March 31,
2020

 

December 31,
2019

 

Trade payables(i)

 

$

75,843

 

$

87,782

 

Add: amounts to be received included in trade payables

 

16,090

 

7,901

 

Revenue adjustment payable

 

$

91,933

 

$

95,683

 

 

(i)            As per note 9 of the Company’s unaudited, condensed interim consolidated financial statements for the three months ended March 31, 2020 and 2019.

 

(1) The cash operating costs per pound sold, cash operating costs excluding royalties per pound sold and total cash costs per pound sold reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this press release.

(2) Conversion of tonnes to pounds, 1 tonne = 2,204.62 pounds or lbs.

(3) The revenue adjustment payable and revenue adjustment per pound is on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this press release.

(4)Defined as current assets less current liabilities per the consolidated statements of financial position.

(5) Effective grade represents the percentage of magnetic material mined multiplied by the percentage of V2O5 in the magnetic concentrate.

(6) Global recovery is the product of crushing recovery, milling recovery, kiln recovery, leaching recovery and chemical plant recovery.

(7) Refer to Management’s Discussion and Analysis for the three months ended March 31, 2020 for exchange rates used.

(8) Revenues per pound sold and vanadium sales per pound sold are calculated based on the quantity of V2O5 sold during the stated period. Revenue adjustment per pound is calculated based on the quantity of V2O5 sold that is subject to re-measurement. This may or may not differ to the quantity sold. Accordingly, these three measures may not, and are not intended to, sum.

(9) The revenue adjustment payable and revenue adjustment per pound is on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this press release.

(10) GAAP – Generally Accepted Accounting Principles.

 

11

Exhibit 99.26

Largo Resources Ltd. (the “Company”) FORM OF PROXY (“PROXY”) Annual and Special Meeting June 8, 2020 at 11:00 a.m. (Toronto Time) Online at – https://web.lumiagm.com/233009732 (the “Meeting”) RECORD DATE:May 1, 2020 CONTROL NUMBER: SEQUENCE #: FILING DEADLINE FOR PROXY: June 4, 2020 at 11:00 a.m. (Toronto Time) 301 - 100 Adelaide Street West The undersigned hereby appoints Alberto Arias, whom failing Paulo Misk, whom failing Ernest Cleave (the “Management Nominees”), or instead of any of them, the following Appointee as proxyholder on behalf of the undersigned with the power of substitution to attend, act and vote for and on behalf of the undersigned in respect of all matters that may properly come before the Meeting and at any adjournment(s) or postponement(s) thereof, to the same extent and with the same power as if the undersigned were personally present at the said Meeting or such adjournment(s) or postponement(s) thereof in accordance with voting instructions, if any, provided below. HHOLD Appointment of PricewaterhouseCoopers LLP as Auditors of the Company for the ensuing year and authorizing the Directors to fix their remuneration. AGAINST Approving an ordinary resolution, substantially in the form set out in the accompanying management information circular, to: (i) approve the Share Compensation Plan, and in connection with this approval, to consider and approve certain amendments to the Share Compensation Plan as further described in the accompanying management information circular; and (ii) to approve the unallocated entitlements available thereunder for the ensuing three (3) years. This proxy revokes and supersedes all earlier dated proxies and MUST BE SIGNED PLEASE PRINT NAME Signature of registered owner(s)Date (MM/DD/YYYY) 3. Share Compensation Plan FOR - SEE VOTING GUIDELINES ON REVERSE - RESOLUTIONS – MANAGEMENT VOTING RECOMMENDATIONS ARE INDICATED BY HIGHLIGHTED TEXT ABOVE THE BOXES 1. Election of Directors FOR WITHHOLD a)Alberto Arias b)David Brace c)Jonathan Lee d)Paulo Misk e)Daniel Tellechea f)Koko Yamamoto 2. Appointment of Auditor FOR WIT Please print appointee name VOTING METHOD INTERNET Go to www.voteproxyonline.com and enter the 12 digit control number above FACSIMILE 416-595-9593 MAIL TSX Trust Company Toronto, Ontario, M5H 4H1

 

Proxy Voting – Guidelines and Conditions 1. THIS PROXY IS SOLICITED BY MANAGEMENT OF THE COMPANY. THIS PROXY SHOULD BE READ IN CONJUNCTION WITH THE MEETING MATERIALS PRIOR TO VOTING. If you appoint the Management Nominees to vote your securities, they will vote in accordance with your instructions or, if no instructions are given, in accordance with the Management Voting Recommendations highlighted for each Resolution on the reverse. If you appoint someone else to vote your securities, they will also vote in accordance with your instructions or, if no instructions are given, as they in their discretion choose. This proxy confers discretionary authority on the person named to vote in his or her discretion with respect to amendments or variations to the matters identified in the Notice of the Meeting accompanying the proxy or such other matters which may properly come before the Meeting or any adjournment or postponement thereof. Each security holder has the right to appoint a person other 2. 3. 4. 5. than the Management Nominees specified herein represent them at the Meeting or any adjournment postponement thereof. Such right may be exercised to or by inserting in the space labeled “Please print appointee name”, the name of the person to be appointed, who need not be a security holder of the Company. 6. To be valid, this proxy must be signed. Please date the proxy. If the proxy is not dated, it is deemed to bear the date of its mailing to the security holders of the Company. To be valid, this proxy must be filed using one of the Voting Methods and must be received by TSX Trust Company before the Filing Deadline for Proxies, noted on the reverse or in the case of any adjournment or postponement of the Meeting not less than 48 hours (Saturdays, Sundays and holidays excepted) before the time of the adjourned or postponed meeting. Late proxies may be accepted or rejected by the Chairman of the Meeting in his discretion, and the Chairman is under no obligation to accept or reject any particular late proxy. If the security holder is a corporation, the proxy must be executed by an officer or attorney thereof duly authorized, and the security holder may be required to provide documentation evidencing the signatory’s power to sign the proxy. 7. 8. 9. Guidelines for proper execution of the proxy are available at www.stac.ca. Please refer to the Proxy Protocol. Investor inSite TSX Trust Company offers at no cost to security holders, the convenience of secure 24-hour access to all data relating to their account including summary of holdings, transaction history, and links to valuable security holder forms and Frequently Asked Questions. To register, please visit www.tsxtrust.com/investorinsite Click on, “Register Online Now” and complete the registration form. Call us toll free at 1-866-600-5869 with any questions. www.tsxtrust.com VANCOUVER CALGARY TORONTO MONTRÉAL 050820_v1 Request for Financial Statements In accordance with securities regulations, security holders may elect to receive Annual Financial Statements, Interim Financial Statements and MD&As. Instead of receiving the financial statements by mail, you may choose to view these documents on SEDAR at www.sedar.com. I am currently a security holder of the Company and as such request the following: Annual Financial Statements with MD&A Interim Financial Statements with MD&A If you are casting your vote online and wish to receive financial statements, please complete the online request for financial statements following your voting instructions. If the cut-off time has passed, please fax this side to 416-595-9593 Largo Resources Ltd. 2020

 

Exhibit 99.27

 

GRAPHIC

 

TSX TRUST COMPANY

 

VIA ELECTRONIC TRANSMISSION

 

May 19, 2020

 

TO ALL APPLICABLE EXCHANGES AND COMMISSIONS:

 

RE:

LARGO RESOURCES LTD.

 

We are pleased to confirm that copies of the following proxy-related materials were mailed on May 15, 2020 to the registered securityholders and the Non-Objecting Beneficial Owners (“NOBO”):

 

1       Proxy with Request for Financial Statements - Registered Securityholders

 

2       Voting Instruction Form with Request for Financial Statements - NOBOs

 

3       Notice of Meeting Combined with Information Circular

 

4       Lumi Virtual Meeting Guide

 

5       Proxy Return Envelope

 

Yours truly,

TSX Trust Company

 

“Lori Winchester”

Senior Relationship Manager

Lori.Winchester@tmx.com

 

VANCOUVER

CALGARY

TORONTO

MONTRÉAL

650 West Georgia Street,
Suite 2700

300-5th Avenue SW, 10th floor
Calgary, AB T2P 3C4

301 - 100 Adelaide Street West
Toronto ON M5H 4H1

1800 - 1190, avenue des
Canadiens-de-Montréal, C. P. 37

Vancouver, BC V6B 4N9

 

 

Montréal (Québec) H3B 0G7

 

 

Toll Free 1-866-600-5869

 

T 604 689-3334

T 403 218-2800

T 416 361-0930

T 514 395-5964

 

Exhibit 99.28

 

GRAPHIC

 

PRESS RELEASE

June 8, 2020

 

Largo Resources Announces Results of its Annual and Special Meeting of Shareholders

 

TORONTO — Largo Resources Ltd. (“Largo” or the “Company”) (TSX: LGO) (OTCQX: LGORF) announces voting results from its Annual and Special Meeting of Shareholders (the “Meeting”) held on Monday, June 8, 2020.

 

A total of 447,446,948 common shares of the Company were voted at the Meeting, representing 79.5% of the Company’s issued and outstanding common shares. Shareholders voted to approve all matters brought before the Meeting including the election of all director nominees, the re-appointment of PricewaterhouseCoopers LLP, Chartered Accountants as auditors for the ensuing year and the amended share compensation plan.

 

Detailed results of the votes on the election of directors are as follows:

 

Name of Director
Nominee

 

Shares Voted For

 

%

 

Shares Withheld

 

%

 

Alberto Arias

 

331,636,192

 

80.34

 

81,165,694

 

19.66

 

Koko Yamamoto

 

317,315,284

 

76.87

 

95,486,602

 

23.13

 

David Brace

 

390,291,905

 

94.55

 

22,509,981

 

5.45

 

Jonathan Lee

 

344,831,583

 

83.53

 

67,970,303

 

16.47

 

Paulo Misk

 

410,327,944

 

99.40

 

2,473,942

 

0.60

 

Daniel Tellechea

 

387,515,984

 

93.87

 

25,285,902

 

6.13

 

 

For further detailed voting results on the Annual and Special Meeting of Shareholders, please refer to the Company’s Report of Voting Results filed on SEDAR at www.sedar.com.

 

About Largo Resources

 

Largo Resources is an industry preferred producer and supplier of vanadium. Largo’s VPURE™ and VPURE+™ products are sourced from one of the world’s highest-grade vanadium deposits at the Maracás Menchen Mine located in Brazil. The Company’s common shares are principally listed on the Toronto Stock Exchange under the symbol “LGO”. For more information on Largo and VPURE™, please visit www.largoresources.com and www.largoVPURE.com

 

For further information, please contact:

 

Alex Guthrie
Manager, Investor Relations and Communications
info@largoresources.com
Tel: +1 416-861-9797

 

Neither the Toronto Stock Exchange (nor its regulatory service provider) accepts responsibility for the adequacy or accuracy of this press release.

 

Exhibit 99.29

 

LARGO RESOURCES LTD.

 

Voting Results for the Annual General and Special Meeting of Shareholders Held on June 8, 2020

 

To: The Applicable Securities Commissions

 

Report of Voting Results

 

In accordance with section 11.3 of National Instrument 51-102 — Continuous Disclosure Obligations, this report briefly describes the matters voted upon and the outcome of the votes at the annual general meeting of shareholders (the “Meeting”) of Largo Resources Ltd. (the “Corporation”) held by live webcast on June 8, 2020.

 

Election of Directors

 

At the Meeting, management of the Corporation presented to the shareholders its nominees for directors. According to proxies received, the following individuals were elected as directors until the next annual general meeting of the Corporation or until their successors are elected or appointed:

 

Director Nominee

 

Votes For

 

Votes Withheld

Alberto Arias

 

331,636,192

 

81,165,694

David Brace

 

390,291,905

 

22,509,981

Jonathan Lee

 

344,831,583

 

67,970,303

Paulo Misk

 

410,327,944

 

2,473,942

Daniel Tellechea

 

387,515,984

 

25,285,902

Koko Yamamoto

 

317,315,284

 

95,486,602

 

Appointment of Auditors

 

At the Meeting, shareholders approved the appointment of PricewaterhouseCoopers LLP as the Corporation’s auditor and authorized the directors to fix the auditors’ remuneration. According to proxies received, PricewaterhouseCoopers LLP was appointed as the Corporation’s auditor and the directors were authorized to fix the auditor’s remuneration based on the following results:

 

Outcome

 

Votes For

 

Votes Withheld

Appointed

 

402,507,981

 

44,938,967

 

Share Compensation Plan

 

At the Meeting, the shareholders were asked to approve the Corporation’s Share Compensation Plan including amendments thereto and the issuance of any unallocated entitlements thereunder. According to proxies received, the Share Compensation Plan was approved with the following results:

 

Outcome

 

Votes For

 

Against

Approved

 

373,672,805

 

39,129,081

 

Exhibit 99.30

 

GRAPHIC

 

LARGO RESOURCES LTD.

 

UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019

 

(Expressed in thousands / 000’s of U.S. dollars)

 

 

TABLE OF CONTENTS

 

Condensed Interim Consolidated Statements of Financial Position

1

 

 

Condensed Interim Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)

2

 

 

Condensed Interim Consolidated Statements of Changes in Equity

3

 

 

Condensed Interim Consolidated Statements of Cash Flows

4

 

 

Notes to the Unaudited Condensed Interim Consolidated Financial Statements

5

 

 

 

1)

Nature of operations

5

 

 

 

2)

Statement of compliance

5

 

 

 

3)

Change in functional and presentation currency

5

 

 

 

4)

Basis of preparation, significant accounting policies, and future accounting changes

6

 

 

 

5)

Change in presentation currency

6

 

 

 

6)

Amounts receivable

8

 

 

 

7)

Inventory

9

 

 

 

8)

Vanadium products

9

 

 

 

9)

Mine properties, plant and equipment

9

 

 

 

10)

Leases

10

 

 

 

11)

Accounts payable and accrued liabilities

10

 

 

 

12)

Debt

11

 

 

 

13)

Issued capital

12

 

 

 

14)

Equity reserves

12

 

 

 

15)

Earnings (loss) per share

14

 

 

 

16)

Taxes

14

 

 

 

17)

Related party transactions

15

 

 

 

18)

Segmented disclosure

15

 

 

 

19)

Commitments and contingencies

19

 

 

 

20)

Financial instruments

19

 

 

 

21)

Revenues

21

 

 

 

22)

Expenses

21

 

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

 

 

 

 

As at

 

 

 

 

 

June 30,

 

December 31,

 

January 1,

 

 

 

Notes

 

2020

 

2019

 

2019

 

 

 

 

 

 

 

Restated

 

Restated

 

 

 

 

 

 

 

(notes 3, 5)

 

(notes 3, 5)

 

Assets

 

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

 

Cash

 

 

 

$

78,215

 

$

127,499

 

$

151,388

 

Restricted cash

 

 

 

—

 

76

 

15

 

Amounts receivable

 

6

 

9,631

 

6,150

 

45,932

 

Inventory

 

7

 

29,849

 

17,981

 

10,552

 

Vanadium products

 

8

 

—

 

3,258

 

—

 

Prepaid expenses

 

 

 

2,128

 

1,632

 

2,460

 

Total Current Assets

 

 

 

119,823

 

156,596

 

210,347

 

Non-current Assets

 

 

 

 

 

 

 

 

 

Deferred income tax

 

16(c)

 

6,703

 

10,571

 

13,863

 

Mine properties, plant and equipment

 

9

 

142,348

 

190,494

 

181,685

 

Total Non-current Assets

 

 

 

149,051

 

201,065

 

195,548

 

Total Assets

 

 

 

$

268,874

 

$

357,661

 

$

405,895

 

Liabilities

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

11

 

$

11,898

 

$

77,741

 

$

24,570

 

Deferred revenue

 

 

 

2,032

 

—

 

—

 

Current portion of provisions

 

 

 

349

 

475

 

307

 

Debt

 

12

 

24,788

 

—

 

86,100

 

Total Current Liabilities

 

 

 

39,067

 

78,216

 

110,977

 

Non-current Liabilities

 

 

 

 

 

 

 

 

 

Provisions

 

19

 

5,893

 

7,342

 

6,509

 

Total Non-current Liabilities

 

 

 

5,893

 

7,342

 

6,509

 

Total Liabilities

 

 

 

44,960

 

85,558

 

117,486

 

Equity

 

 

 

 

 

 

 

 

 

Issued capital

 

13

 

398,765

 

396,026

 

378,859

 

Equity reserves

 

14

 

20,996

 

21,448

 

26,308

 

Accumulated other comprehensive loss

 

 

 

(114,514

)

(66,501

)

(63,634

)

Deficit

 

 

 

(81,333

)

(78,870

)

(53,124

)

Total Equity

 

 

 

223,914

 

272,103

 

288,409

 

Total Liabilities and Equity

 

 

 

$

268,874

 

$

357,661

 

$

405,895

 

 

Commitments and contingencies                                9, 19

 

—The accompanying notes form an integral part of the consolidated financial statements—

 

Unaudited Condensed Interim Consolidated Financial Statements For The Three and Six Months Ended June 30, 2020 and 2019

 

1

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)

 

 

 

 

 

Three Months ended
June 30,

 

Six Months ended
June 30,

 

 

 

Notes

 

2020

 

2019 

 

2020

 

2019

 

 

 

 

 

 

 

Restated

 

 

 

Restated

 

 

 

 

 

 

 

(notes 3, 5)

 

 

 

(notes 3, 5)

 

Revenues

 

21

 

$

8,350

 

$

21,963

 

$

50,259

 

$

55,168

 

Other gains (losses)

 

8

 

1,998

 

—

 

1,636

 

—

 

 

 

 

 

10,348

 

21,963

 

51,895

 

55,168

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

Operating costs

 

22

 

(9,561

)

(24,815

)

(35,809

)

(46,598

)

Professional, consulting and management fees

 

 

 

(1,240

)

(1,971

)

(2,932

)

(4,088

)

Foreign exchange loss

 

 

 

(3,700

)

(2,659

)

(12,193

)

(2,915

)

Other general and administrative expenses

 

 

 

(787

)

(1,110

)

(1,659

)

(1,933

)

Share-based payments

 

14

 

(365

)

(556

)

(779

)

(1,702

)

Finance costs

 

22

 

(476

)

(8,133

)

(602

)

(13,609

)

Interest income

 

 

 

296

 

3,021

 

956

 

3,159

 

Exploration and evaluation costs

 

 

 

(48

)

(872

)

(529

)

(1,598

)

 

 

 

 

(15,881

)

(37,095

)

(53,547

)

(69,284

)

Net income (loss) before tax

 

 

 

$

(5,533

)

$

(15,132

)

$

(1,652

)

$

(14,116

)

Income tax recovery (expense)

 

16(a)

 

—

 

102

 

—

 

(732

)

Deferred income tax (expense)

 

16(a)

 

(1,479

)

(268

)

(1,017

)

(1,869

)

Net income (loss)

 

 

 

$

(7,012

)

$

(15,298

)

$

(2,669

)

$

(16,717

)

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

Items that subsequently will be reclassified to operations:

 

 

 

 

 

 

 

 

 

 

 

Unrealized (loss) gain on foreign currency translation

 

 

 

(3,314

)

4,584

 

(48,013

)

4,173

 

Comprehensive income (loss)

 

 

 

$

(10,326

)

$

(10,714

)

$

(50,682

)

$

(12,544

)

Basic earnings (loss) per Common Share

 

15

 

$

(0.01

)

$

(0.03

)

$

(0.00

)

$

(0.03

)

Diluted earnings (loss) per Common Share

 

15

 

$

(0.01

)

$

(0.03

)

$

(0.00

)

$

(0.03

)

Weighted Average Number of Shares Outstanding (in 000’s)

 

 

 

 

 

 

 

 

 

 

 

- Basic

 

 

 

563,123

 

531,559

 

561,934

 

530,471

 

- Diluted

 

 

 

563,123

 

531,559

 

561,934

 

530,471

 

 

—The accompanying notes form an integral part of the consolidated financial statements—

 

2

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

 

 

Shares

 

Issued Capital

 

Equity Reserves

 

Accumulated Other
Comprehensive Loss

 

Deficit

 

Shareholders’ Equity

 

Balance at January 1, 2019 (Restated(1))

 

529,126

 

$

378,859

 

$

26,308

 

$

(63,634

)

$

(53,124

)

$

288,409

 

Grant of share options

 

—

 

—

 

637

 

—

 

—

 

637

 

Grant of restricted share units

 

—

 

—

 

 641

 

—

 

—

 

641

 

Share-based payments

 

—

 

—

 

 424

 

—

 

—

 

424

 

Exercise of warrants

 

1,947

 

288

 

(209

)

—

 

—

 

79

 

Exercise of share options

 

558

 

393

 

(143

)

—

 

—

 

250

 

Expiry of share options

 

—

 

—

 

(181

)

—

 

181

 

—

 

Currency translation adjustment

 

—

 

—

 

—

 

 4,173

 

—

 

4,173

 

Net loss for the period

 

—

 

—

 

—

 

—

 

 (16,717

)

(16,717

)

Balance at June 30, 2019 (Restated(1))

 

531,631

 

$

379,540

 

$

27,477

 

$

(59,461

)

$

(69,660

)

$

277,896

 

Grant of restricted share units

 

—

 

—

 

1,226

 

—

 

—

 

1,226

 

Share-based payments

 

—

 

—

 

626

 

—

 

—

 

626

 

Exercise of warrants

 

19,229

 

13,191

 

(4,562

)

—

 

—

 

8,629

 

Exercise of share options

 

2,690

 

1,669

 

(650

)

—

 

—

 

1,019

 

Exercise of restricted share units

 

984

 

1,626

 

(1,626

)

—

 

—

 

—

 

Expiry of warrants

 

—

 

—

 

(70

)

—

 

70

 

—

 

Expiry of share options

 

—

 

—

 

(973

)

—

 

973

 

—

 

Currency translation adjustment

 

—

 

—

 

—

 

(7,040

)

—

 

(7,040

)

Net loss for the period

 

—

 

—

 

—

 

—

 

(10,253

)

(10,253

)

Balance at December 31, 2019 (Restated(1))

 

554,534

 

$

396,026

 

$

21,448

 

$

(66,501

)

$

(78,870

)

$

272,103

 

Grant of share options

 

—

 

—

 

425

 

—

 

—

 

425

 

Grant of restricted share units

 

—

 

—

 

 151

 

—

 

—

 

151

 

Share-based payments

 

—

 

—

 

203

 

—

 

—

 

203

 

Exercise of warrants

 

8,240

 

1,648

 

(351

)

—

 

—

 

1,297

 

Exercise of share options

 

805

 

626

 

(209

)

—

 

—

 

417

 

Exercise of restricted share units

 

202

 

465

 

(465

)

—

 

—

 

—

 

Expiry of warrants

 

—

 

—

 

(159

)

—

 

159

 

—

 

Expiry of share options

 

—

 

—

 

(47

)

—

 

47

 

—

 

Currency translation adjustment

 

—

 

—

 

—

 

 (48,013

)

—

 

(48,013

)

Net loss for the period

 

—

 

—

 

—

 

—

 

 (2,669

)

(2,669

)

Balance at June 30, 2020

 

563,781

 

$

398,765

 

$

20,996

 

$

(114,514

)

$

(81,333

)

$

223,914

 

 

(1)             Refer to notes 3 and 5.

 

—The accompanying notes form an integral part of the consolidated financial statements—

 

3

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

Three Months ended

 

Six Months ended

 

 

 

 

 

June 30,

 

June 30,

 

 

 

Notes

 

2020

 

2019

 

2020

 

2019

 

 

 

 

 

 

 

Restated

 

 

 

Restated

 

 

 

 

 

 

 

(notes 3, 5)

 

 

 

(notes 3, 5)

 

Operating Activities

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) for the period

 

 

 

$

(7,012

)

$

(15,298

)

$

(2,669

)

$

(16,717

)

Adjustment for Non-cash Items

 

 

 

 

 

 

 

 

 

 

 

Other (gains) losses

 

8

 

(1,998

)

—

 

(1,636

)

—

 

Depreciation

 

 

 

2,044

 

6,696

 

8,499

 

12,176

 

Share-based payments

 

14

 

365

 

556

 

779

 

1,702

 

Unrealized foreign exchange loss (gain)

 

 

 

5,970

 

3,526

 

(5,930

)

2,396

 

Finance costs

 

22

 

476

 

8,133

 

602

 

13,609

 

Interest income

 

 

 

(296

)

(3,021

)

(956

)

(3,159

)

Income tax expense (recovery)

 

16(a)

 

—

 

(102

)

—

 

732

 

Deferred income tax expense (recovery)

 

16(a)

 

1,479

 

268

 

1,017

 

1,869

 

Income tax paid

 

 

 

—

 

(352

)

—

 

(911

)

Cash Provided (Used) Before Working Capital Items

 

 

 

1,028

 

406

 

(294

)

11,697

 

Change in amounts receivable

 

 

 

(4,544

)

(2,905

)

(5,458

)

41,616

 

Change in inventory

 

 

 

(15,931

)

(1,414

)

(13,988

)

(3,641

)

Change in vanadium products

 

 

 

5,907

 

—

 

5,036

 

—

 

Change in prepaid expenses

 

 

 

(740

)

134

 

(888

)

(2,413

)

Change in accounts payable and accrued liabilities

 

 

 

(51,401

)

26,120

 

(51,071

)

41,612

 

Change in deferred revenue

 

 

 

2,032

 

—

 

2,032

 

—

 

Net Cash (Used in) Provided by Operating Activities

 

 

 

(63,649

)

22,341

 

(64,631

)

88,871

 

Financing Activities

 

 

 

 

 

 

 

 

 

 

 

Receipt of debt

 

12

 

—

 

—

 

24,788

 

—

 

Repayment of debt

 

12

 

—

 

(6,736

)

—

 

(70,447

)

Debt issue costs, interest and other associated fees paid

 

 

 

—

 

(1,522

)

—

 

(6,090

)

Interest received

 

 

 

360

 

3,090

 

939

 

3,143

 

Change in restricted cash

 

 

 

—

 

—

 

76

 

15

 

Issuance of common shares

 

14

 

417

 

52

 

1,714

 

329

 

Net Cash Provided by (Used in) Financing Activities

 

 

 

777

 

(5,116

)

27,517

 

(73,050

)

Investing Activities

 

 

 

 

 

 

 

 

 

 

 

Mine properties, plant and equipment

 

 

 

(5,221

)

(14,195

)

(8,601

)

(20,355

)

Net Cash (Used in) Investing Activities

 

 

 

(5,221

)

(14,195

)

(8,601

)

(20,355

)

Effect of foreign exchange on cash

 

 

 

1,014

 

(1,162

)

(3,569

)

(1,331

)

Net Change in Cash

 

 

 

(67,079

)

1,868

 

(49,284

)

(5,865

)

Cash position — beginning of the period

 

 

 

145,294

 

143,655

 

127,499

 

151,388

 

Cash Position — end of the period

 

 

 

$

78,215

 

$

145,523

 

$

78,215

 

$

145,523

 

 

—The accompanying notes form an integral part of the consolidated financial statements—

 

4

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

1)        Nature of operations

 

Largo Resources Ltd. (the “Company”) is engaged in the acquisition, exploration, development and operation of mining and exploration properties located in Brazil and Canada. Substantially all of the Company’s efforts are devoted to operating the Maracás Menchen Mine and to the sales of vanadium. While the Company’s Maracás Menchen Mine has reached commercial production, future changes in market conditions and feasibility estimates could result in the Company’s mineral resources not being economically recoverable.

 

The Company is a corporation governed by the Business Corporations Act (Ontario) and domiciled in Canada whose shares are listed on the Toronto Stock Exchange (“TSX”). The head office, principal address and records office of the Company are located at 55 University Avenue, Suite 1105, Toronto, Ontario, Canada M5J 2H7.

 

2)        Statement of compliance

 

These unaudited condensed interim consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) in accordance with International Accounting Standard (“IAS”) 34, Interim Financial Reporting.

 

The unaudited condensed interim consolidated financial statements were approved by the Board of Directors of the Company on August 13, 2020.

 

3)        Change in functional and presentation currency

 

Following the election by the Company in 2019, the Company’s off-take agreement with Glencore International AG expired at the end of April 2020. In connection with this and with the Company managing its own sales activities from May 1, 2020 onwards, the Company and a number of its subsidiaries are generating U.S. dollar denominated revenues and incurring U.S. dollar denominated costs from May 1, 2020 onwards. Considering the significance of these revenues and costs to the Company’s activities, the Company has determined that the currency of the primary economic environment in which the below entities operate changed to the U.S. dollar on May 1, 2020.

 

Entity Name

 

Functional Currency
at March 31, 2020

 

Functional Currency
effective May 1, 2020

Largo Resources Ltd.

 

Canadian dollar

 

U.S. dollar

Largo Commodities Holding Ltd.

 

Euro

 

U.S. dollar

Largo Commodities Trading Ltd.

 

Euro

 

U.S. dollar

 

The Company and its subsidiaries operate in a mixture of currencies and therefore the determination of functional currency involves certain judgments to determine the primary economic environment in which the Company or its subsidiaries operate. The Company reconsiders the functional currency of its entities if there is a change in events and conditions which determine the primary economic environment.

 

In addition, the Company changed its presentation currency from the Canadian dollar (“C$”) to the U.S. dollar (“$” or “USD”). This change in presentation currency was made in connection with the changes in functional currency noted above and to better reflect the Company’s current business activities.

 

The change in functional currency to the U.S. dollar is accounted for prospectively from May 1, 2020. The exchange rates used to translate assets and liabilities to reflect the change in functional currency on adoption is $1 equals C$1.3874 and $1 equals 0.9194 Euros (“EUR”).

 

Prior period comparative information is restated in U.S. dollars to reflect the change in presentation currency. The financial statements of entities with a functional currency that is not the U.S. dollar have been translated into U.S. dollars in accordance with IAS 21, The Effects of Changes in Foreign Exchange Rates, as follows:

 

·                      Assets and liabilities have been translated into U.S. dollars using period-end exchange rates of:

 

·                      January 1, 2019: $1 equals C$1.3620 and $1 equals 3.8748 Brazilian reals (“BRL”).

 

·                      December 31, 2019: $1 equals C$1.3023, $1 equals 0.8902 EUR and $1 equals 4.0307 BRL.

 

5

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

·                      Condensed interim consolidated statements of income (loss) and other comprehensive income (loss) have been translated using average foreign exchange rates prevailing during the reporting periods which ranged from $1 equals C$1.3302 to C$1.3397 and $1 equals 3.7684 to 3.9221 BRL;

 

·                      Shareholder’s equity balances have been translated using historical average foreign exchange rates for the periods in which the transactions occurred; and

 

·                      Resulting exchange differences have been recorded within the foreign currency translation reserve accounts.

 

4)        Basis of preparation, significant accounting policies, and future accounting changes

 

The basis of presentation, and accounting policies and methods of their application in these unaudited condensed interim consolidated financial statements, including comparatives, are consistent with those used in the Company’s audited annual consolidated financial statements for the year ended December 31, 2019, except as disclosed in notes 3 and 5, and should be read in conjunction with those statements.

 

These unaudited condensed interim consolidated financial statements are presented in thousands of U.S. dollars, unless otherwise noted. References to the symbol “C$” or “CAD” mean the Canadian dollar, references to the symbol “EUR” mean the Euro and references to the symbol “R$” or “BRL” mean the Brazilian real, the official currency of Brazil.

 

a)                 Critical judgements and estimation uncertainties

 

The preparation of unaudited condensed interim consolidated financial statements in conformity with IFRS requires the Company’s management to make judgments, estimates and assumptions about the carrying amount of its assets and liabilities that are not readily apparent from other sources. These estimates and assumptions are disclosed in note 4(d) of the Company’s audited annual consolidated financial statements for the year ended December 31, 2019. There have been no significant changes to the areas of estimation and judgment during the three and six months ended June 30, 2020.

 

COVID-19

 

The Company is conscious of the rapid expansion of the COVID-19 pandemic and the evolving global implications. To date, there have been no significant disruptions to the Company’s operations, supply chain or on its shipment of products from the Maracás Menchen Mine. However, the Company cautions that the potential future impact of any restrictions on the Company’s operations, supply chain, sales efforts and logistics is currently unknown but could be significant.

 

b)                 Significant accounting policies

 

These unaudited condensed interim consolidated financial statements, including comparatives, have been prepared following the same accounting policies and methods of computation as the audited annual consolidated financial statements for the year ended December 31, 2019, except as disclosed in notes 3 and 5.

 

5)        Change in presentation currency

 

The impact of the change in presentation currency (see note 3) on the unaudited condensed interim consolidated financial statements is as follows:

 

6

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

Condensed interim consolidated statement of financial position — as at January 1, 2019

 

 

 

Previously
reported in
CAD

 

Restated
USD

 

Assets

 

 

 

 

 

Total Current Assets

 

C$

286,491

 

$

210,347

 

Total Non-current Assets

 

266,334

 

195,548

 

Total Assets

 

552,825

 

405,895

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Total Current Liabilities

 

C$

151,233

 

$

110,977

 

Total Non-current Liabilities

 

8,865

 

6,509

 

Total Liabilities

 

160,098

 

117,486

 

 

 

 

 

 

 

Equity

 

 

 

 

 

Issued capital

 

C$

415,259

 

$

378,859

 

Equity reserves

 

25,853

 

26,308

 

Accumulated other comprehensive loss

 

(18,904

)

(63,634

)

Deficit

 

(29,481

)

(53,124

)

Total Equity

 

392,727

 

288,409

 

Total Liabilities and Equity

 

C$

552,825

 

$

405,895

 

 

Condensed interim consolidated statement of financial position — as at December 31, 2019

 

 

 

Previously
reported in
CAD

 

Restated
USD

 

Assets

 

 

 

 

 

Total Current Assets

 

C$

203,992

 

$

156,596

 

Total Non-current Assets

 

262,126

 

201,065

 

Total Assets

 

466,118

 

357,661

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Total Current Liabilities

 

C$

101,979

 

$

78,216

 

Total Non-current Liabilities

 

9,572

 

7,342

 

Total Liabilities

 

111,551

 

85,558

 

 

 

 

 

 

 

Equity

 

 

 

 

 

Issued capital

 

C$

437,937

 

$

396,026

 

Equity reserves

 

19,447

 

21,448

 

Accumulated other comprehensive loss

 

(38,744

)

(66,501

)

Deficit

 

(64,073

)

(78,870

)

Total Equity

 

354,567

 

272,103

 

Total Liabilities and Equity

 

C$

466,118

 

$

357,661

 

 

7

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

Condensed interim consolidated statement of income (loss) and comprehensive income (loss) — three and six month periods ended June 30, 2019

 

 

 

Previously reported in CAD

 

Restated USD

 

 

 

Three months

 

Six months

 

Three months

 

Six months

 

Revenues

 

C$

29,462

 

C$

73,776

 

$

21,963

 

$

55,168

 

 

 

 

 

 

 

 

 

 

 

Operating costs

 

(33,284

)

(62,355

)

(24,815

)

(46,598

)

Professional, consulting and management fees

 

(2,647

)

(5,465

)

(1,971

)

(4,088

)

Foreign exchange loss

 

(3,920

)

(4,237

)

(2,659

)

(2,915

)

Other general and administrative expenses

 

(1,135

)

(2,243

)

(1,110

)

(1,933

)

Share-based payments

 

(745

)

(2,269

)

(556

)

(1,702

)

Finance costs

 

(10,897

)

(18,180

)

(8,133

)

(13,609

)

Interest income

 

4,052

 

4,236

 

3,021

 

3,159

 

Exploration and evaluation costs

 

(1,165

)

(2,128

)

(872

)

(1,598

)

 

 

(49,741

)

(92,641

)

(37,095

)

(69,284

)

Net income (loss) before tax

 

C$

(20,279

)

C$

(18,865

)

$

(15,132

)

$

(14,116

)

Income tax recovery (expense)

 

138

 

(976

)

102

 

(732

)

Deferred income tax expense

 

(360

)

(2,828

)

(268

)

(1,869

)

Net income (loss)

 

C$

(20,501

)

C$

(22,669

)

$

(15,298

)

$

(16,717

)

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on foreign currency translation

 

403

 

(10,021

)

4,584

 

4,173

 

Comprehensive income (loss)

 

C$

(20,098

)

C$

(32,690

)

$

(10,714

)

$

(12,544

)

 

Condensed interim consolidated statement of cash flows — three and six month periods ended June 30, 2019

 

 

 

Previously reported in CAD

 

Restated USD

 

 

 

Three months

 

Six months

 

Three months

 

Six months

 

Net cash provided by operating activities

 

C$

21,759

 

C$

117,175

 

$

22,341

 

$

88,871

 

Net cash (used in) financing activities

 

(6,936

)

(99,295

)

(5,116

)

(73,050

)

Net cash (used in) investing activities

 

(18,969

)

(27,171

)

(14,195

)

(20,355

)

Effect of foreign exchange on cash

 

3,724

 

(6,619

)

(1,162

)

(1,331

)

Net change in cash

 

(422

)

(15,910

)

1,868

 

(5,865

)

Cash position — beginning of the period

 

190,700

 

206,188

 

143,655

 

151,388

 

Cash position — end of the period

 

C$

190,278

 

C$

190,278

 

$

145,523

 

$

145,523

 

 

8

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

6)        Amounts receivable

 

 

 

June 30,
2020

 

December 31,
2019

 

Trade receivables

 

$

3,684

 

$

—

 

Current taxes recoverable — Brazil

 

5,840

 

5,920

 

Current taxes recoverable — Other

 

62

 

41

 

Other receivables

 

45

 

189

 

Total

 

$

9,631

 

$

6,150

 

 

At June 30, 2020, the Company’s trade receivable with its former off-take partner (note 19) was in a liability position of $2,440 and was classified as trade payables (refer to notes 11 and 20(a)) (December 31, 2019 — trade payables of $67,325).

 

7)        Inventory

 

 

 

June 30,
2020

 

December 31,
2019

 

Finished products

 

$

19,872

 

$

5,637

 

Work-in-process

 

2,015

 

2,018

 

Stockpiles

 

785

 

1,413

 

Warehouse materials

 

7,177

 

8,913

 

Total

 

$

29,849

 

$

17,981

 

 

During the three and six months ended June 30, 2020, the Company recognized net realizable value write-downs of $1,176 and $125 for finished products and warehouse materials, respectively (note 22). As inventory is sold, previously recorded net realizable value write-downs are reclassified from inventory write-down to direct mine and mill costs or product acquisition costs as appropriate (note 22).

 

8)        Vanadium products

 

The Company’s off-take agreement with Glencore International AG expired at the end of April 2020. In connection with this and with the Company managing its own sales activities from May 1, 2020 onwards, the Company’s vanadium products are accounted for as finished products inventory (note 7) effective from May 1, 2020. An assessment of net realizable value was performed on the transfer into inventory at May 1, 2020 that resulted in a write-down of $649 (included in the $1,176 disclosed in note 7).

 

Prior to this, vanadium products were measured at fair value based on Level 2 fair value inputs. During the three and six months ended June 30, 2020, the Company recognized other gains (losses) of $1,998 and $1,636, respectively (three and six months ended June 30, 2019 — $nil and $nil), relating to realized and unrealized gains and losses on the purchases and sales of vanadium products.

 

9)        Mine properties, plant and equipment

 

At June 30, 2020 and December 31, 2019, the Company’s economic interest in the Maracás Menchen Mine totalled 99.94%. The remaining 0.06% economic interest is held by Companhia Baiana de Pesquisa Mineral (“CBPM”) owned by the state of Bahia. CBPM retains a 3% net smelter royalty (“NSR”) in the Maracás Menchen Mine. The property is also subject to a royalty of 2% on certain operating costs under the Brazilian Mining Act. Under a separate agreement, Anglo Pacific Plc receives a 2% NSR in the Maracás Menchen Mine.

 

The net book value of the Company’s mine properties, plant and equipment at June 30, 2020 by geographic location is: Brazil - $123,886 (December 31, 2019 - $170,243); Canada - $18,462 (December 31, 2019 - $20,251).

 

9

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Office and
Computer
Equipment

 

Vehicles

 

Mine
Properties

 

Machinery
and
Equipment

 

Construction
In Progress

 

Total

 

COST

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

 

$

887

 

$

349

 

$

94,067

 

$

169,882

 

$

5,043

 

$

270,228

 

Additions

 

234

 

—

 

8,475

 

6,282

 

26,597

 

41,588

 

Tax credits

 

—

 

—

 

—

 

(2,678

)

—

 

(2,678

)

Disposals

 

(98

)

—

 

—

 

(2,686

)

—

 

(2,784

)

Reclassifications

 

—

 

—

 

—

 

21,319

 

(21,319

)

—

 

Effects of changes in foreign exchange rates

 

(43

)

(13

)

(1,682

)

(6,258

)

(1,225

)

(9,221

)

Balance at December 31, 2019

 

$

980

 

$

336

 

$

100,860

 

$

185,861

 

$

9,096

 

$

297,133

 

Additions

 

53

 

—

 

5,112

 

1,713

 

1,902

 

8,780

 

Reclassifications

 

—

 

—

 

—

 

8,323

 

(8,323

)

—

 

Effects of changes in foreign exchange rates

 

(219

)

(89

)

(21,786

)

(50,693

)

(962

)

(73,749

)

Balance at June 30, 2020

 

$

814

 

$

247

 

$

84,186

 

$

145,204

 

$

1,713

 

$

232,164

 

ACCUMULATED DEPRECIATION

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

 

$

527

 

$

349

 

$

19,093

 

$

68,574

 

$

—

 

$

88,543

 

Depreciation

 

102

 

—

 

6,400

 

17,119

 

—

 

23,621

 

Disposals

 

(98

)

—

 

—

 

(2,686

)

—

 

(2,784

)

Effects of changes in foreign exchange rates

 

(8

)

(13

)

235

 

(2,955

)

—

 

(2,741

)

Balance at December 31, 2019

 

$

523

 

$

336

 

$

25,728

 

$

80,052

 

$

—

 

$

106,639

 

Depreciation

 

40

 

—

 

2,558

 

8,520

 

—

 

11,118

 

Effects of changes in foreign exchange rates

 

(117

)

(89

)

(5,683

)

(22,052

)

—

 

(27,941

)

Balance at June 30, 2020

 

$

446

 

$

247

 

$

22,603

 

$

66,520

 

$

—

 

$

89,816

 

NET BOOK VALUE

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2019

 

$

457

 

$

—

 

$

75,132

 

$

105,809

 

$

9,096

 

$

190,494

 

At June 30, 2020

 

$

368

 

$

—

 

$

61,583

 

$

78,684

 

$

1,713

 

$

142,348

 

 

10)          Leases

 

At June 30, 2020 and December 31, 2019, the Company did not have any right-of-use assets or lease liabilities.

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,
2020

 

June 30,
2019

 

June 30,
2020

 

June 30,
2019

 

Recognized in the condensed interim consolidated statements of income (loss) and comprehensive income (loss):

 

 

 

 

 

 

 

 

 

Expenses relating to short-term leases

 

$

2,810

 

$

3,303

 

$

6,017

 

$

6,824

 

 

 

 

 

 

 

 

 

 

 

Recognized in the condensed interim consolidated statement of cash flows

 

 

 

 

 

 

 

 

 

Total cash outflow for leases

 

$

2,624

 

$

3,027

 

$

5,597

 

$

6,274

 

 

10

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

11)          Accounts payable and accrued liabilities

 

 

 

June 30,
2020

 

December 31,
2019

 

Trade payables

 

$

2,440

 

$

67,325

 

Accounts payable

 

6,610

 

7,720

 

Accrued liabilities

 

2,365

 

2,363

 

Accrued financial costs

 

281

 

—

 

Other taxes

 

202

 

333

 

Total

 

$

11,898

 

$

77,741

 

 

At June 30, 2020, the Company’s trade receivable with its former off-take partner (note 19) was in a liability position of $2,440 and was classified as trade payables (December 31, 2019 — trade payables of $67,325 (refer to note 20(a))).

 

12)          Debt

 

 

 

June 30,
2020

 

December 31,
2019

 

Total debt

 

$

24,788

 

$

—

 

 

 

 

 

 

 

 

Non-cash

 

 

 

 

 

December 31,
2019

 

Cash flows
Proceeds

 

Foreign
exchange
movement

 

June 30,
2020

 

Total debt

 

$

—

 

$

24,788

 

$

—

 

$

24,788

 

Total liabilities from financing activities

 

$

—

 

$

24,788

 

$

—

 

$

24,788

 

 

 

 

 

 

 

 

Non-cash

 

 

 

 

 

December 31,
2018

 

Cash flows
Repayment

 

Foreign
exchange
movement

 

December 31,
2019

 

Total debt(1)

 

$

92,812

 

$

(92,812

)

$

—

 

$

—

 

Total liabilities from financing activities

 

$

92,812

 

$

(92,812

)

$

—

 

$

—

 

 

(1)    The gross amount excludes unamortized deferred transaction costs.

 

Credit facilities

 

On March 18, 2020, the Company secured a $13,000 credit facility with a bank in Brazil. This facility was fully drawn down and proceeds of R$65,980 ($13,000) were received on March 20, 2020. This facility is due to be repaid as a lump sum payment on March 12, 2021, together with accrued interest at a rate of 3.35% per annum.

 

On March 24, 2020 the Company secured a $11,788 credit facility with a second bank in Brazil. This facility was fully drawn down and proceeds of R$60,000 ($11,788) were received on March 24, 2020. This facility is due to be repaid as a lump sum payment on March 18, 2021, together with accrued interest at a rate of 6.29% per annum.

 

Senior secured notes

 

On May 22, 2018, the Company completed a private placement of $150,000 aggregate principal amount of senior secured notes due in 2021 (the “Notes”). The Notes were callable in years 2 and 3 and had an interest rate of 9.25% per annum, paid on a semi-annual basis in arrears on December 1 and June 1 each year, beginning on December 1, 2018. The terms of the Notes allowed the Company to redeem all or part of the Notes at varying redemption prices and established certain restrictive covenants.

 

11

 

LARGO RESOURCES LTD.

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

On January 28, 2019 and February 19, 2019, the Company completed the purchase and cancellation of $59,221 and $4,490 in aggregate principal amounts of Notes outstanding. The Notes were purchased at a price equal to 105.625% per principal amount of the Notes redeemed plus accrued and unpaid interest up to January 28, 2019 and February 15, 2019, respectively.

 

On May 3, 2019, the Company made an excess cash flow offer to purchase all of its outstanding Notes at that time of $29,101 at a purchase price of 103% of the principal amount thereof plus accrued and unpaid interest to, but not including, the purchase date. The offer was required to be made in accordance with the terms of the Notes and following this offer, $6,736 of the Notes were repurchased and cancelled.

 

On June 10, 2019, the Company announced that it had elected to redeem the remaining outstanding Notes. The Notes were redeemed on July 8, 2019 at a price equal to 104.625% of the principal amount of the Notes plus accrued and unpaid interest to, but not including, the redemption date. The total amount paid was $23,606, including the principal amount of Notes outstanding of $22,365.

 

Following this redemption on July 8, 2019, the balance of the Notes outstanding was $nil.

 

13)          Issued capital

 

a)             Authorized

 

Unlimited common shares without par value.

 

b)             Issued

 

 

 

Six months ended
June 30, 2020

 

Year ended
December 31, 2019

 

 

 

Number of
Shares

 

Stated
Value

 

Number of
Shares

 

Stated
Value

 

Balance, beginning of the period

 

554,534

 

$

396,026

 

529,126

 

$

378,859

 

Exercise of warrants (note 14)

 

8,240

 

1,648

 

21,176

 

13,479

 

Exercise of share options (note 14)

 

805

 

626

 

3,248

 

2,062

 

Exercise of restricted share units

 

202

 

465

 

984

 

1,626

 

Balance, end of the period

 

563,781

 

$

398,765

 

554,534

 

$

396,026

 

 

14)          Equity reserves

 

Under the Company’s incentive share compensation plan, the Company has issued options and restricted share units (“RSUs”) approximating 1.47% of its issued and outstanding capital at June 30, 2020.

 

During the three and six months ended June 30, 2020, the Company recognized a share-based payment expense related to the grant and vesting of share options and RSUs of $365 and $779 (three and six months ended June 30, 2019 —  $556 and $1,702) for share options and RSUs granted to the Company’s directors, officers, employees and consultants. The total share-based payment expense was charged to operations.

 

During the six months ended June 30, 2020, 2,707 warrants were exercised resulting in proceeds to the Company of $1,297, with 129 warrants surrendered as part of cashless exercises. 5,533 shares were issued in connection with a warrant exercise in 2019. In addition, 805 share options were exercised resulting in proceeds to the Company of $417.

 

During the year ended December 31, 2019, 26,709 warrants were exercised resulting in proceeds to the Company of $8,708, with 10,907 warrants surrendered as part of cashless exercises. In addition, 3,248 share options were exercised resulting in proceeds to the Company of $1,269.

 

The Company applies the fair value method of accounting for share-based payment awards. The Company estimated the expected volatility using historical volatilities from the Company’s traded common shares when

 

12

 

LARGO RESOURCES LTD.

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

estimating the fair value of share options granted, as it believes that this methodology best reflects the expected future volatility of its stock.

 

 

 

RSUs

 

Options

 

Warrants

 

 

 

 

 

Number

 

Value

 

Number

 

Weighted
average
exercise
price

 

Value

 

Number

 

Weighted
average
exercise
price

 

Value

 

Total
value

 

December 31, 2018

 

791

 

$

326

 

6,958

 

C$

0.82

 

$

4,030

 

146,202

 

C$

0.48

 

$

21,952

 

$

26,308

 

Share-based payments

 

—

 

1,050

 

—

 

 

—

 

—

 

—

 

 

—

 

—

 

1,050

 

Granted

 

1,017

 

1,878

 

370

 

 

3.04

 

637

 

—

 

 

—

 

—

 

2,515

 

Forfeited

 

(16

)

(11

)

—

 

 

—

 

—

 

—

 

 

—

 

—

 

(11

)

Exercised

 

(984

)

(1,626

)

(3,248

)

 

(0.52

)

(793

)

(37,616

)

 

(0.64

)

(4,771

)

(7,190

)

Expired

 

—

 

—

 

(933

)

 

(2.28

)

(1,154

)

(484

)

 

(0.65

)

(70

)

(1,224

)

December 31, 2019

 

808

 

$

1,617

 

3,147

 

C$

0.96

 

$

2,720

 

108,102

 

C$

0.42

 

$

17,111

 

$

21,448

 

Share-based payments

 

—

 

203

 

—

 

 

—

 

—

 

—

 

 

—

 

—

 

203

 

Granted

 

1,799

 

151

 

3,828

 

 

0.67

 

444

 

—

 

 

—

 

—

 

595

 

Exercised

 

(202

)

(465

)

(805

)

 

(0.70

)

(209

)

(2,836

)

 

(0.65

)

(351

)

(1,025

)

Expired

 

—

 

—

 

(200

)

 

(0.46

)

(47

)

(1,272

)

 

(0.65

)

(159

)

(206

)

Forfeited

 

(39

)

—

 

(54

)

 

(0.67

)

(19

)

—

 

 

—

 

—

 

(19

)

June 30, 2020

 

2,366

 

$

1,506

 

5,916

 

C$

0.83

 

$

2,889

 

103,994

 

C$

0.41

 

$

16,601

 

$

20,996

 

 

a)             RSUs

 

During the six months ended June 30, 2020, the Company granted 1,799 RSUs to officers and employees of the Company (year ended December 31, 2019 — 1,017 RSUs). These RSUs vest over time, with one-third vesting during each of the three month periods ending March 31, 2021, March 31, 2022 and March 31, 2023. The value of the vested RSUs includes the Company’s expected forfeiture rate of 0%. Upon vesting, the RSUs provide the holders with common shares of the Company.

 

b)             Share options

 

Range of prices

 

No. outstanding

 

No. exercisable

 

Weighted
average
remaining
life (years)

 

Weighted
average
exercise
price

 

Weighted
average
grant date
share price

 

C$

0.46 – 1.00

 

5,311

 

2,288

 

3.7

 

C$

0.61

 

C$

0.61

 

2.01 – 2.50

 

285

 

285

 

3.1

 

 

2.40

 

 

2.40

 

3.01 – 3.04

 

320

 

320

 

3.5

 

 

3.04

 

 

3.04

 

 

 

5,916

 

2,893

 

 

 

 

 

 

 

 

The remaining weighted average contractual life of options outstanding at June 30, 2020 was 3.7 years (December 31, 2019 — 1.9 years).

 

During the six months ended June 30, 2020, the Company granted 3,828 (year ended December 31, 2019 — 370) share options to its directors, officers, employees and consultants with a weighted average exercise price of C$0.67.  750 of the share options vested immediately and are exercisable for a period of 5 years from the date of grant. The remainder vest over time, with one-third vesting during each of the three month periods ending March 31, 2021, March 31, 2022 and March 31, 2023. The estimated weighted average grant date fair value of the share options was C$0.48 per stock option, as determined using the Black-Scholes valuation model and the following assumptions: risk free interest rate — 0.74%, expected life in years — 5, expected volatility — 93.7%, expected dividends — 0% and expected forfeiture rate — 0%.

 

13

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

c)              Warrants and broker warrants

 

No.
outstanding

 

No.
exercisable

 

Grant
Date

 

Expiry
Date

 

Exercise
price

 

Expected
volatility

 

Expected
life (years)

 

Expected
dividend
yield

 

Risk-free
Interest
rate

 

25,502

 

25,502

 

29-Jan-16

 

28-Jan-21

 

C$

0.29

 

129

%

5.00

 

0

%

0.67

%

63,078

 

63,078

 

2-Mar-16

 

2-Mar-21

 

C$

0.29

 

132

%

5.00

 

0

%

0.68

%

400

 

400

 

11-Apr-17

 

31-Dec-20

 

C$

0.50

 

94

%

3.75

 

0

%

0.96

%

3,538

 

3,538

 

1-Dec-17

 

1-Dec-22

 

C$

1.15

 

93

%

5.00

 

0

%

1.63

%

11,476

 

11,476

 

13-Dec-17

 

13-Dec-22

 

C$

1.15

 

93

%

5.00

 

0

%

1.65

%

103,994

 

103,994

 

 

 

 

 

C$

0.41

 

 

 

 

 

 

 

 

 

 

15)          Earnings (loss) per share

 

The total number of shares issuable from options, warrants and RSUs that are excluded from the computation of diluted earnings (loss) per share because their effect would be anti-dilutive was 112,276 and 112,276 for the three and six months ended June 30, 2020 (three and six months ended June 30, 2019 — 152,374 and 152,374).

 

16)          Taxes

 

a)             Tax (expense) recovery

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,
2020

 

June 30,
2019

 

June 30,
2020

 

June 30,
2019

 

Income tax (expense) recovery

 

$

—

 

$

102

 

$

—

 

$

(732

)

Deferred income tax (expense) recovery

 

(1,479

)

(268

)

(1,017

)

(1,869

)

Total

 

$

(1,479

)

$

(166

)

$

(1,017

)

$

(2,601

)

 

b)                 Changes in deferred tax assets and liabilities

 

 

 

Six months ended
June 30, 2020

 

Year ended
December 31, 2019

 

Net deferred income tax asset, beginning of the period

 

$

10,571

 

$

13,863

 

Deferred income tax (expense) recovery

 

(1,017

)

(2,612

)

Effect of foreign exchange

 

(2,851

)

(680

)

Net deferred income tax asset, end of the period

 

$

6,703

 

$

10,571

 

 

c)                  Deferred income tax balances

 

 

 

June 30,
2020

 

December 31,
2019

 

Brazil

 

 

 

 

 

Recognized deferred tax assets:

 

 

 

 

 

Non-capital losses

 

$

16,857

 

$

21,946

 

Mine properties

 

661

 

828

 

 

 

 

 

 

 

Recognized deferred tax liabilities:

 

 

 

 

 

Transitional tax regime

 

$

(7,014

)

$

(9,221

)

Provisions

 

(3,801

)

(2,982

)

Net deferred income tax asset

 

$

6,703

 

$

10,571

 

 

14

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

Deferred tax assets have not been recognized in respect of the following deductible temporary differences:

 

 

 

June 30,
2020

 

December 31,
2019

 

Canada

 

 

 

 

 

Non-capital loss carry-forwards

 

$

61,362

 

$

68,131

 

Mine properties, plant and equipment

 

17,292

 

18,118

 

Share issue costs

 

4,052

 

5,108

 

Ireland

 

 

 

 

 

Non-capital loss carry-forwards

 

$

3,117

 

$

1,906

 

Mine properties, plant and equipment

 

79

 

91

 

 

17)          Related party transactions

 

In accordance with IAS 24, key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company directly or indirectly, including any directors (executive and non-executive) of the Company. One of the directors, Ms. Koko Yamamoto, is a partner in an accounting firm that provides services to the Company. During the three and six months ended June 30, 2020, an amount in accounting fees of $nil and $nil (three and six months ended June 30, 2019 — $nil and $2) was billed and paid under normal payment terms.

 

During the six months ended June 30, 2020, 5,533 shares were issued to funds managed by Arias Resource Capital Management LP (the “ARC Funds”) in connection with a warrant exercise in 2019 (refer to note 14).

 

The remuneration of directors and other members of key management personnel during the period was as follows:

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,
2020

 

June 30,
2019

 

June 30,
2020

 

June 30,
2019

 

Short-term benefits

 

$

260

 

$

413

 

$

1,435

 

$

2,069

 

Share-based payments

 

263

 

463

 

629

 

1,348

 

Total

 

$

523

 

$

876

 

$

2,064

 

$

3,417

 

 

Refer to note 19 for additional commitments with management.

 

18)          Segmented disclosure

 

The Company has four operating segments: sales & trading, mine properties, corporate and exploration and evaluation properties (“E&E properties”). Corporate includes the corporate team that provides administrative, technical, financial and other support to all of the Company’s business units, as well as being part of the Company’s sales structure.

 

The Company recognized revenues from customers of $8,350 and $50,259 in the three and six months ended June 30, 2020 (three and six months ended June 30, 2019 — $21,963 and $55,168). These revenues are related to the Company’s sales & trading and mine properties segments.

 

15

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Sales &
trading

 

Mine
properties

 

Corporate

 

E&E
properties

 

Inter-segment
transactions

 

Total

 

Three months ended June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

2,447

 

$

18,116

 

$

12,397

 

$

—

 

$

(24,610

)

$

8,350

 

Other gains (losses)

 

1,636

 

—

 

362

 

—

 

—

 

1,998

 

 

 

4,083

 

18,116

 

12,759

 

—

 

(24,610

)

10,348

 

Operating costs

 

(5,378

)

(13,062

)

(12,213

)

—

 

21,092

 

(9,561

)

Professional, consulting and management fees

 

(516

)

(435

)

(289

)

—

 

—

 

(1,240

)

Foreign exchange gain (loss)

 

5

 

(2,095

)

(1,610

)

—

 

—

 

(3,700

)

Other general and administrative expenses

 

(341

)

(528

)

82

 

—

 

—

 

(787

)

Share-based payments

 

—

 

—

 

(365

)

—

 

—

 

(365

)

Finance costs

 

(7

)

(473

)

4

 

—

 

—

 

(476

)

Interest income

 

—

 

217

 

79

 

—

 

—

 

296

 

Exploration and evaluation costs

 

—

 

(47

)

—

 

(1

)

—

 

(48

)

 

 

(6,237

)

(16,423

)

(14,312

)

(1

)

21,092

 

(15,881

)

Net income (loss) before tax

 

(2,154

)

1,693

 

(1,553

)

(1

)

(3,518

)

(5,533

)

Income tax expense

 

—

 

—

 

—

 

—

 

—

 

—

 

Deferred income tax expense

 

—

 

(1,479

)

—

 

—

 

—

 

(1,479

)

Net income (loss)

 

$

(2,154

)

$

214

 

$

(1,553

)

$

(1

)

$

(3,518

)

$

(7,012

)

At June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

Total non-current assets

 

$

9

 

$

130,588

 

$

18,454

 

$

—

 

$

—

 

$

149,051

 

Total assets

 

$

21,610

 

$

195,731

 

$

79,640

 

$

21

 

$

(28,128

)

$

268,874

 

Total liabilities

 

$

15,706

 

$

41,343

 

$

12,521

 

$

—

 

$

(24,610

)

$

44,960

 

 

16

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Sales &
trading

 

Mine
properties

 

Corporate

 

E&E
properties

 

Inter-segment
transactions

 

Total

 

Three months ended June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

—

 

$

21,963

 

$

—

 

$

—

 

$

—

 

$

21,963

 

Other gains (losses)

 

—

 

—

 

—

 

—

 

—

 

—

 

 

 

—

 

21,963

 

—

 

—

 

—

 

21,963

 

Operating costs

 

—

 

(24,815

)

—

 

—

 

—

 

(24,815

)

Professional, consulting and management fees

 

—

 

(1,195

)

(776

)

—

 

—

 

(1,971

)

Foreign exchange loss

 

—

 

(70

)

(2,589

)

—

 

—

 

(2,659

)

Other general and administrative expenses

 

—

 

(290

)

(820

)

—

 

—

 

(1,110

)

Share-based payments

 

—

 

—

 

(556

)

—

 

—

 

(556

)

Finance costs

 

—

 

(82

)

(8,051

)

—

 

—

 

(8,133

)

Interest income

 

—

 

2,503

 

518

 

—

 

—

 

3,021

 

Exploration and evaluation costs

 

—

 

(866

)

—

 

(6

)

—

 

(872

)

 

 

—

 

(24,815

)

(12,274

)

(6

)

—

 

(37,095

)

Net income (loss) before tax

 

—

 

(2,852

)

(12,274

)

(6

)

—

 

(15,132

)

Income tax recovery

 

—

 

102

 

—

 

—

 

—

 

102

 

Deferred income tax expense

 

—

 

(268

)

—

 

—

 

—

 

(268

)

Net income (loss)

 

$

—

 

$

(3,018

)

$

(12,274

)

$

(6

)

$

—

 

$

(15,298

)

At December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Total non-current assets

 

$

—

 

$

180,813

 

$

20,252

 

$

—

 

$

—

 

$

201,065

 

Total assets

 

$

—

 

$

239,402

 

$

118,202

 

$

57

 

$

—

 

$

357,661

 

Total liabilities

 

$

—

 

$

84,634

 

$

924

 

$

—

 

$

—

 

$

85,558

 

 

17

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Sales &
trading

 

Mine
properties

 

Corporate

 

E&E
properties

 

Inter-segment
transactions

 

Total

 

Six months ended June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

2,447

 

$

60,025

 

$

12,397

 

$

—

 

$

(24,610

)

$

50,259

 

Other gains (losses)

 

1,636

 

—

 

—

 

—

 

—

 

1,636

 

 

 

4,083

 

60,025

 

12,397

 

—

 

(24,610

)

51,895

 

Operating costs

 

(5,378

)

(39,310

)

(12,213

)

—

 

21,092

 

(35,809

)

Professional, consulting and management fees

 

(516

)

(1,270

)

(1,146

)

—

 

—

 

(2,932

)

Foreign exchange gain (loss)

 

5

 

(18,016

)

5,818

 

—

 

—

 

(12,193

)

Other general and administrative expenses

 

(341

)

(765

)

(553

)

—

 

—

 

(1,659

)

Share-based payments

 

—

 

—

 

(779

)

—

 

—

 

(779

)

Finance costs

 

(7

)

(591

)

(4

)

—

 

—

 

(602

)

Interest income

 

—

 

491

 

465

 

—

 

—

 

956

 

Exploration and evaluation costs

 

—

 

(469

)

—

 

(60

)

—

 

(529

)

 

 

(6,237

)

(59,930

)

(8,412

)

(60

)

21,092

 

(53,547

)

Net income (loss) before tax

 

(2,154

)

95

 

3,985

 

(60

)

(3,518

)

(1,652

)

Income tax expense

 

—

 

—

 

—

 

—

 

—

 

—

 

Deferred income tax expense

 

—

 

(1,017

)

—

 

—

 

—

 

(1,017

)

Net income (loss)

 

$

(2,154

)

$

(922

)

$

3,985

 

$

(60

)

$

(3,518

)

$

(2,669

)

 

18

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Sales &
trading

 

Mine
properties

 

Corporate

 

E&E
properties

 

Inter-segment
transactions

 

Total

 

Six months ended June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

—

 

$

55,168

 

$

—

 

$

—

 

$

—

 

$

55,168

 

Other gains (losses)

 

—

 

—

 

—

 

—

 

—

 

—

 

 

 

—

 

55,168

 

—

 

—

 

—

 

55,168

 

Operating costs

 

—

 

(46,598

)

—

 

—

 

—

 

(46,598

)

Professional, consulting and management fees

 

—

 

(2,147

)

(1,941

)

—

 

—

 

(4,088

)

Foreign exchange gain (loss)

 

—

 

848

 

(3,763

)

—

 

—

 

(2,915

)

Other general and administrative expenses

 

—

 

(491

)

(1,442

)

—

 

—

 

(1,933

)

Share-based payments

 

—

 

—

 

(1,702

)

—

 

—

 

(1,702

)

Finance costs

 

—

 

(146

)

(13,463

)

—

 

—

 

(13,609

)

Interest income

 

—

 

2,503

 

656

 

—

 

—

 

3,159

 

Exploration and evaluation costs

 

—

 

(1,435

)

—

 

(163

)

—

 

(1,598

)

 

 

—

 

(47,466

)

(21,655

)

(163

)

—

 

(69,284

)

Net income (loss) before tax

 

—

 

7,702

 

(21,655

)

(163

)

—

 

(14,116

)

Income tax expense

 

—

 

(732

)

—

 

—

 

—

 

(732

)

Deferred income tax recovery

 

—

 

(1,869

)

—

 

—

 

—

 

(1,869

)

Net income (loss)

 

$

—

 

$

5,101

 

$

(21,655

)

$

(163

)

$

—

 

$

(16,717

)

 

19)          Commitments and contingencies

 

At June 30, 2020, the Company was party to certain management and consulting contracts. Minimum commitments under the agreements are approximately $2,292 and all payable within one year. These contracts also require that additional payments of up to approximately $3,438 be made upon the occurrence of certain events such as change of control. As the triggering event has not occurred, the contingent payments have not been reflected in these consolidated financial statements.

 

In 2008, Largo agreed to sell 100% of its vanadium production to Glencore International AG under an off-take agreement which, following the election by the Company, expired at the end of April 2020. The Company has entered into a number of contracts with third party customers to deliver monthly quantities of the Company’s various vanadium products. A significant proportion of the Company’s monthly vanadium production after April 2020 has been committed, with deliveries beginning in June 2020.

 

The Company’s mining and exploration activities are subject to various federal, provincial and international laws and regulations governing the protection of the environment. These laws and regulations are continually changing and generally becoming more restrictive. The Company has made payments to comply with such laws and regulations.

 

The Company indemnifies its directors and officers against any and all claims or losses reasonably incurred in the performance of their service to the Company to the extent permitted by law. The Company has acquired and maintains liability insurance for its directors and officers.

 

The Company is committed to a minimum amount of rental payments under five leases of office space which expire between October 31, 2020 and December 31, 2023. Minimum rental commitments remaining under the leases are approximately $655, including $245 due within one year. In addition, minimum rental commitments remaining under other short-term leases are approximately $16, all due within one year.

 

19

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

At the Company’s Maracás Menchen Mine, the Company has entered into purchase order contracts with remaining amounts due related to goods not received or services not rendered as of June 30, 2020 of $5,817.

 

The Company, through its subsidiaries, is party to legal proceedings in the ordinary course of its operations related to legally binding agreements with various third parties under supply contracts and consulting agreements. At June 30, 2020 two such proceedings were ongoing, each in Brazil. The first relates to a supply agreement for the Maracás Menchen Mine which was filed with the courts in October 2014. The amount claimed totals R$9,900 ($1,808), with a counterclaim filed by Vanádio for R$10,700 ($1,954). A provision of R$1,281 ($234) has been recognized at June 30, 2020 for the probable loss (December 31, 2019 — R$1,324 ($328)). The second proceeding relates to a consulting agreement dispute for which R$3,900 ($712) (December 31, 2019 — R$3,900 ($968)) has been claimed against two of the Company’s subsidiaries. No provision has been recognized for this proceeding. The Company and its subsidiaries are also party to legal proceedings regarding labour matters. A provision was recorded at December 31, 2019 for such proceedings in an amount of R$3,468 ($860). At June 30, 2020, the provision recognized was R$3,206 ($585). The outcome of these proceedings remains dependent on the final judgment, which the Company does not expect to be delivered within the next 12 months. Management does not expect the outcome of any of the remaining proceedings to have a materially adverse effect on the results of the Company’s financial position or results of operations. Should any losses result from the resolution of these claims and disputes, they will be charged to operations in the period that they are determined.

 

20)          Financial instruments

 

Financial assets and financial liabilities at June 30, 2020 and December 31, 2019 were as follows:

 

 

 

June 30,
2020

 

December 31,
2019

 

Cash

 

$

78,215

 

$

127,499

 

Restricted cash

 

—

 

76

 

Amounts receivable

 

3,729

 

189

 

Accounts payable and accrued liabilities

 

11,898

 

77,741

 

Debt

 

24,788

 

—

 

 

Refer to the liquidity risk discussion below regarding liabilities.

 

The Company’s risk exposures and the impact on the Company’s financial instruments are summarized below. There have been no changes in the risks, objectives, policies and procedures from the previous year.

 

a)             Fair value

 

IFRS requires that the Company disclose information about the fair value of its financial assets and liabilities. Fair value estimates are made based on relevant market information and information about the financial instrument.

 

These estimates are subjective in nature and involve uncertainties in significant matters of judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect these estimates.

 

The fair value hierarchy categorizes into three levels the inputs to valuation techniques used to measure fair value.  The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs).

 

·             Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.

 

·             Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly such as those derived from prices.

 

·             Level 3 inputs are unobservable inputs for the asset or liability.

 

20

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

At June 30, 2020 and December 31, 2019, trade receivables are classified as financial assets at fair value through profit or loss and are measured at fair value. The valuation of trade receivables is classified within Level 2 of the fair value hierarchy as it is measured using observable vanadium market transaction data as reported by a recognized provider of global metal prices. The valuation of trade receivables with the Company’s former off-take partner (note 19) at June 30, 2020 and December 31, 2019 resulted in a liability position. Accordingly, this balance has been classified as trade payables (refer to note 11) at June 30, 2020 and December 31, 2019.

 

The carrying amounts for cash, restricted cash, other amounts receivable, accounts payable and accrued liabilities (excluding trade payables) and debt in the condensed interim consolidated statements of financial position approximate fair values because of the limited term of these instruments.

 

There have been no changes in the classification of financial instruments in the fair value hierarchy since December 31, 2019. The Company does not have any financial instruments measured using Level 3 inputs. The Company does not offset financial assets with financial liabilities and there were no transfers between Level 1 and Level 2 input financial instruments.

 

b)             Credit risk

 

The Company’s credit risk is primarily attributable to cash, restricted cash and amounts receivable. The Company minimizes its credit risk with respect to cash and restricted cash by leaving its funds on deposit with the highest rated banks in Canada and Brazil. Financial instruments included in amounts receivable consist primarily of receivables from unrelated companies. Management believes that the credit risk related to these receivables is remote due the credit quality of the customers and the Company’s credit insurance policies. For customers not covered by the Company’s credit insurance policies, the Company requires letters of credit or up-front payment before delivery occurs.

 

c)              Liquidity risk

 

The following table details the Company’s expected remaining contractual cash flow requirements at June 30, 2020 for its financial liabilities with agreed repayment periods.

 

 

 

Less than
6 months

 

6 months
to 1 year

 

1 to 3 years

 

Over 3 years

 

Accounts payable and accrued liabilities (note 11)

 

$

11,617

 

$

281

 

$

—

 

$

—

 

Long-term debt (note 12)

 

—

 

24,788

 

—

 

—

 

 

 

$

11,617

 

$

25,069

 

$

—

 

$

—

 

 

The Company’s principal sources of liquidity are its cash flow from operating activities and cash of $78,215 (December 31, 2019 — $127,499). In response to the vanadium price decreases throughout 2019, the Company has adopted certain measures to manage its liquidity risk including repaying its Notes during the year ended December 31, 2019 and obtaining the credit facilities in 2020 (note 12). Despite these measures, and in conjunction with the current vanadium price environment, a risk exists that the Company will not have sufficient liquidity to meet its obligations as they come due.

 

d)             Market risk

 

Interest rate risk

 

The Company’s exposure to a rise in interest rates is limited to that portion of its total debt that is subject to floating interest rates. At June 30, 2020, the Company’s debt is subject to fixed interest rates and the Company does not have any exposure to floating interest rates.

 

21

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

Foreign currency risk

 

At June 30, 2020, the Company’s outstanding debt is 100% denominated in U.S. dollars (December 31, 2019 — no outstanding debt facilities).

 

The impact of fluctuations in foreign currency on cash balances and debt relates primarily to fluctuations between the U.S. dollar, the Canadian dollar, the Brazilian real and the Euro. At June 30, 2020 the Company’s U.S. dollar functional currency entities had cash balances denominated in Canadian dollars and Euros and the Company’s Brazilian real functional currency entities had debt denominated in U.S. dollars.

 

A 5% change in the value of the Canadian dollar and the Euro relative to the U.S. dollar would affect the value of these cash balances at June 30, 2020 by approximately $748. A 5% change in the value of the Brazilian real relative to the U.S. dollar would affect the value of Brazilian real cash balances by approximately $1,223.

 

Price risk

 

The Company’s only financial instruments susceptible to price risk is its trade receivables /  payables with its former off-take partner, which can vary with the market price of vanadium for products sold that have not yet had the final selling price determined in accordance with the off-take agreement in force at the time of sale. A 10% decrease or increase in the price of vanadium could affect the value of trade payables at June 30, 2020 by $414.

 

21)          Revenues

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,
2020

 

June 30,
2019

 

June 30,
2020

 

June 30,
2019

 

Vanadium sales from contracts with customers

 

$

10,823

 

$

56,500

 

$

51,020

 

$

132,482

 

Re-measurement of trade receivables / payables

 

(2,473

)

(34,537

)

(761

)

(77,314

)

Total

 

$

8,350

 

$

21,963

 

$

50,259

 

$

55,168

 

 

22)          Expenses

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30, 
2020

 

June 30,
2019

 

June 30,
2020

 

June 30, 
2019

 

Operating costs:

 

 

 

 

 

 

 

 

 

Direct mine and mill costs

 

$

2,180

 

$

16,800

 

$

19,674

 

$

31,367

 

Royalties

 

1,290

 

1,327

 

3,597

 

3,070

 

Product acquisition costs

 

2,444

 

—

 

2,444

 

—

 

Distribution costs

 

312

 

—

 

312

 

—

 

Inventory write-down

 

1,301

 

—

 

1,301

 

—

 

Depreciation and amortization

 

2,034

 

6,688

 

8,481

 

12,161

 

 

 

$

9,561

 

$

24,815

 

$

35,809

 

$

46,598

 

Finance costs:

 

 

 

 

 

 

 

 

 

Interest expense

 

$

444

 

$

1,961

 

$

530

 

$

6,780

 

Accretion

 

32

 

6,172

 

72

 

6,829

 

 

 

$

476

 

$

8,133

 

$

602

 

$

13,609

 

 

22

Exhibit 99.31

 

GRAPHIC

 

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020

 

 

 

TABLE OF CONTENTS

 

To Our Shareholders

1

 

 

The Company

1

 

 

Q2 2020 Highlights

1

 

 

Significant Events and Transactions Subsequent To The Period

2

 

 

Q2 2020 Summary

2

 

 

Selected Quarterly Information

8

 

 

Operations

8

 

 

Financial Instruments

15

 

 

Liquidity And Capital Resources

15

 

 

Outstanding Share Data

16

 

 

Transactions With Related Parties

16

 

 

Commitments And Contingencies

17

 

 

Disclosure Controls And Procedures And Internal Controls Over Financial Reporting

17

 

 

Significant Accounting Judgments, Estimates And Assumptions

18

 

 

Changes In Accounting Policies

19

 

 

Non-GAAP Measures

19

 

 

Risks And Uncertainties

21

 

 

Cautionary Statement Regarding Forward-Looking Information

21

 

 

TO OUR SHAREHOLDERS

 

The following Management’s Discussion and Analysis (“MD&A”) relates to the financial condition and results of operations of Largo Resources Ltd. (“we”, “our”, “us”, “Largo”, or the “Company”) for the quarter ended June 30, 2020 (“Q2 2020”) and should be read in conjunction with (i) the unaudited condensed interim consolidated financial statements and related notes for the same period, (ii) the audited annual consolidated financial statements and related notes for the year ended December 31, 2019 and (iii) the MD&A for the year ended December 31, 2019. References in the below discussion refer to the note disclosures contained in the Q2 2020 unaudited condensed interim consolidated financial statements. References in the below discussion to “Q2 2019” refer to the quarter ended June 30, 2019.

 

The financial statements and related notes of Largo have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued as issued by the International Accounting Standards Board (“IASB”) applicable to a going concern. Certain non-GAAP measures are discussed in this MD&A, which are clearly disclosed as such. Additional information, including our press releases, has been filed electronically through the System for Electronic Document Analysis and Retrieval (“SEDAR”) and is available online under our profile at www.sedar.com.

 

This MD&A reports our activities through August 13, 2020, unless otherwise indicated. References to “date of this MD&A” mean August 13, 2020. Except as otherwise set out herein, all amounts expressed herein are in thousands of U.S. dollars, denominated by “$”. The Company’s shares, options, units and warrants are expressed in thousands. Prices are not expressed in thousands. References to the symbol “C$” mean the Canadian dollar and references to the symbol “R$” mean the Real, the official currency of Brazil.

 

Mr. Paul Sarjeant B.Sc. P.Geo., is a Qualified Person as defined under National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”) and has reviewed the technical information in the MD&A. Mr. Sarjeant is Manager, Geology of the Company. Refer to the Operations section of this MD&A for details of the Qualified Persons involved in reviewing the updated reserves and resources at the Company’s Maracás Menchen Mine.

 

THE COMPANY

 

Largo is a Canadian natural resource company organized and existing under the Business Corporations Act (Ontario). Largo is listed on the Toronto Stock Exchange (“TSX”), with a vanadium mine and vanadium and tungsten projects in Brazil and Canada. In Brazil, Largo owns the Maracás Menchen Mine and has secondary projects with the Currais Novos tungsten tailings project and the Campo Alegre de Lourdes iron-vanadium project. In Canada, Largo has a project at the Northern Dancer tungsten-molybdenum property, located in the Yukon Territory. Substantially all of the Company’s efforts are devoted to operating the Maracás Menchen Mine and to the sales of vanadium.

 

Q2 2020 HIGHLIGHTS

 

·                  Following the election by the Company in 2019, the Company’s off-take agreement with Glencore International AG expired at the end of April 2020. In connection with this and with the Company managing its own sales activities from May 1, 2020 onwards, the Company and a number of its subsidiaries are generating U.S. dollar denominated revenues and incurring U.S. dollar denominated costs from May 1, 2020 onwards. Considering the significance of these revenues and costs to the Company’s activities, the Company has determined that the currency of the primary economic environment in which some of its entities operate changed to the U.S. dollar on May 1, 2020. In addition, the Company changed its presentation currency from the Canadian dollar to the U.S. dollar (refer to notes 3 and 5).

 

·                  In May 2020 the Company made a payment of approximately $57,441 to the Company’s former off-take partner in settlement of the trade payables balance at the expiration of the off-take agreement on April 30, 2020.

 

·                  The Company’s Maracás Menchen Mine produced 2,562 tonnes of vanadium pentoxide (“V2O5”) in Q2 2020.

 

·                  The Company completed its first independent shipment of vanadium from Brazil on May 14, 2020. As previously communicated, the Company’s finished products inventory balance at June 30, 2020 was

 

Management’s Discussion and Analysis for the Three and Six Months Ended June 30, 2020

 

1

 

expectedly higher as a direct consequence of the Company’s sales now typically being recognized at the time of delivery, which can take a few months from the time of shipment from Brazil.

 

·                  The Company recorded a net loss before tax of $5,533 for Q2 2020 and a net loss of $7,012 after the recognition of a deferred income tax expense of $1,479.

 

·                  The Company’s cash balance at June 30, 2020 was $78,215. In Q2 2020, 805 share options with an exercise price of $0.70 were exercised resulting in gross proceeds to the Company of $417 (refer to note 14).

 

·                  The Company is conscious of the rapid expansion of the COVID-19 pandemic and the evolving global implications. To date, there have been no significant disruptions to the Company’s operations, supply chain or on its shipment of products from the Maracás Menchen Mine. However, the Company cautions that the potential future impact of any restrictions on the Company’s operations, supply chain, sales efforts and logistics is currently unknown but could be significant.

 

·                  The Company’s planned upgrades to the kiln and improvements in the cooler have been postponed until Q4 2020 as a result of precautionary measures such as limiting mine site personnel and contractors in light of the COVID-19 pandemic. This work is intended to increase the nameplate capacity to 1,100 tonnes of V2O5 per month and is not expected to have a significant impact on the Company’s Q4 2020 production. Further, the COVID-19 pandemic has caused delays in the start of the Company’s 2020 drilling program, with work commencing in the last week of June 2020 following the completion of prescribed COVID-19 quarantine procedures for all drilling personnel.

 

SIGNIFICANT EVENTS AND TRANSACTIONS SUBSEQUENT TO THE PERIOD

 

·                  On July 20, 2020, the Company announced the release of its 2019 sustainability report, highlighted by new performance metrics and reporting standards. This report is guided in part by SASB, the Sustainability Accounting Standards Board.

 

Q2 2020 SUMMARY

 

Financial

 

 

 

Three months ended

 

 

 

 

 

 

 

June 30,
2020

 

June 30,
2019

 

Movement

 

Revenues

 

$

8,350

 

$

21,963

 

$

(13,613

)

(62

)%

Other gains (losses)

 

1,998

 

—

 

1,998

 

—

 

 

 

10,348

 

21,963

 

(11,615

)

(53

)%

Operating costs

 

(9,561

)

(24,815

)

15,254

 

(61

)%

Direct mine and mill costs

 

(2,180

)

(16,800

)

14,620

 

(87

)%

Professional, consulting and management fees

 

(1,240

)

(1,971

)

731

 

(37

)%

Foreign exchange loss

 

(3,700

)

(2,659

)

(1,041

)

39

%

Other general and administrative expenses

 

(787

)

(1,110

)

323

 

(29

)%

Share-based payments

 

(365

)

(556

)

191

 

(34

)%

Finance costs

 

(476

)

(8,133

)

7,657

 

(94

)%

Interest income

 

296

 

3,021

 

(2,725

)

(90

)%

Exploration and evaluation costs

 

(48

)

(872

)

824

 

(94

)%

 

 

(15,881

)

(37,095

)

21,214

 

(57

)%

Net income (loss) before tax

 

$

(5,533

)

$

(15,132

)

$

9,599

 

(63

)%

Income tax recovery

 

—

 

102

 

(102

)

(100

)%

Deferred income tax expense

 

(1,479

)

(268

)

(1,211

)

452

%

Net income (loss)

 

$

(7,012

)

$

(15,298

)

$

8,286

 

(54

)%

 

 

 

 

 

 

 

 

 

 

Unrealized loss on foreign currency translation

 

(3,314

)

4,584

 

(7,898

)

(172

)%

Comprehensive income (loss)

 

$

(10,326

)

$

(10,714

)

$

388

 

(4

)%

 

2

 

 

 

Three months ended

 

 

 

 

 

June 30,
2020

 

June 30,
2019

 

Movement

 

Basic earnings (loss) per share

 

$

(0.01

)

$

(0.03

)

$

0.02

 

—

 

Diluted earnings (loss) per share

 

$

(0.01

)

$

(0.03

)

$

0.02

 

—

 

 

 

 

 

 

 

 

 

 

 

Cash provided before non-cash working capital items

 

$

1,028

 

$

406

 

$

622

 

153

%

Net cash (used in) provided by operating activities

 

(63,649

)

22,341

 

(85,990

)

(385

)%

Net cash provided by (used in) financing activities

 

777

 

(5,116

)

5,893

 

(115

)%

Net cash (used in) investing activities

 

(5,221

)

(14,195

)

8,974

 

(63

)%

Net change in cash

 

$

(67,079

)

$

1,868

 

$

(68,947

)

(3,691

)%

 

 

 

Six months ended

 

 

 

 

 

June 30,
2020

 

June 30,
2019

 

Movement

 

Revenues

 

$

50,259

 

$

55,168

 

$

(4,909

)

(9

)%

Other gains (losses)

 

1,636

 

55,168

 

1,636

 

—

 

 

 

51,895

 

55,168

 

(3,273

)

(6

)%

Operating costs

 

(35,809

)

(46,598

)

10,789

 

 

 

Direct mine and mill costs

 

(19,674

)

(31,367

)

11,693

 

(23

)%

Professional, consulting and management fees

 

(2,932

)

(4,088

)

1,156

 

(37

)%

Foreign exchange loss

 

(12,193

)

(2,915

)

(9,278

)

318

%

Other general and administrative expenses

 

(1,659

)

(1,933

)

274

 

(14

)%

Share-based payments

 

(779

)

(1,702

)

923

 

(54

)%

Finance costs

 

(602

)

(13,609

)

13,007

 

(96

)%

Interest income

 

956

 

3,159

 

(2,203

)

(70

)%

Exploration and evaluation costs

 

(529

)

(1,598

)

1,069

 

(67

)%

 

 

(53,547

)

(69,284

)

15,737

 

(23

)%

Net income before tax

 

$

(1,652

)

$

(14,116

)

$

12,464

 

(88

)%

Income tax expense

 

—

 

(732

)

732

 

(100

)%

Deferred income tax recovery (expense)

 

(1,017

)

(1,869

)

852

 

(46

)%

Net income (loss)

 

$

(2,669

)

$

(16,717

)

$

14,048

 

(84

)%

 

 

 

 

 

 

 

 

 

 

Unrealized loss on foreign currency translation

 

(48,013

)

4,173

 

(52,186

)

(1,251

)%

Comprehensive income (loss)

 

$

(50,682

)

$

(12,544

)

$

(38,138

)

304

%

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share

 

$

(0.00

)

$

(0.03

)

$

0.03

 

—

 

Diluted earnings (loss) per share

 

$

(0.00

)

$

(0.03

)

$

0.03

 

—

 

 

 

 

 

 

 

 

 

 

 

Cash (used) provided before non-cash working capital items

 

$

(294

)

$

11,697

 

$

(11,991

)

(103

)%

Net cash (used in) provided by operating activities

 

(64,631

)

88,871

 

(153,502

)

(173

)%

Net cash provided by (used in) financing activities

 

27,517

 

(73,050

)

100,567

 

(138

)%

Net cash (used in) investing activities

 

(8,601

)

(20,355

)

11,754

 

(58

)%

Net change in cash

 

$

(49,284

)

$

(5,865

)

$

(43,419

)

740

%

 

The movements in the discussion below refer to those shown in the previous tables.

 

·                  The Company recorded a net loss of $7,012 in Q2 2020, compared with a net loss of $15,298 in Q2 2019. This movement was primarily due to a 61% decrease in operating costs, a 94% decrease in finance costs and a $1,998 increase in other gains (losses). This was partially offset by a 62% decrease in revenues, a 39% increase in the foreign exchange loss and a 90% decrease in interest income. For the six months ended June 30, 2020,

 

3

 

the Company recorded a net loss of $2,669, compared with $16,717 for the same prior year period. This movement was primarily attributable to the same factors as noted for Q2 2020.

 

Sales and Trading

 

·                  The Company completed its first independent shipment of vanadium from Brazil on May 14, 2020 to an end-user in the U.S. Since then, the Company has delivered both standard grade and high purity V2O5 as well as ferrovanadium (“FeV”) to customers in Brazil, North America, Europe and Asia.

 

·                  The Company’s logistics operations have experienced cancelations and delays related to COVID-19, both inside and outside of Brazil. The Company has, so far, been able to fulfil all of its commercial commitments with on-time deliveries thanks to careful planning and responsiveness.

 

·                  The markets in which the Company operates have been impacted in various ways during Q2 2020. COVID-19 had a negative impact on the demand for vanadium from the aerospace industry while on the positive side, the Chinese steel sector, which currently accounts for approximately 50% of the total global vanadium demand, saw a sharp recovery.

 

·                  During Q2 2020, the average price per lb of V2O5 in Europe decreased by 5%, ending the period with an average price of approximately $5.30, compared with approximately $5.58 at March 31, 2020. The average price per lb of V2O5 for Q2 2020 was approximately $6.14, compared with approximately $8.59 for Q2 2019. The Company is now selling products with pricing based on several different V2O5 and FeV benchmarks. The Company’s revenues will be driven by the movements in these prices.

 

·                  During Q2 2020, the Company recognized revenues of $8,350 (Q2 2019 — $21,963) from sales of 1,018 tonnes of V2O5 equivalent. The low volume of sales in May and June was expected and is attributable to the Company’s sales now typically being recognized at the time of delivery, which can take a few months from the time of shipment from Brazil. In addition, the Company is focussed on building its strategic stock levels. Of the total revenues, $2,447 is related to the Sales & trading segment and $5,903 is related to the Mine properties segment (after the elimination of inter-segment transactions). Refer to note 4(c) part 9 of the Company’s annual consolidated financial statements for the year ended December 31, 2019 for the Company’s vanadium sales accounting policy.

 

·                  For the six months ended June 30, 2020, the Company recognized revenues of $50,259 ($55,168 for the same prior year period). Of the total, $2,447 is related to the Sales & trading segment and $47,812 is related to the Mine properties segment (after the elimination of inter-segment transactions).

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,
2020

 

June 30,
2019

 

June 30,
2020

 

June 30,
2019

 

Revenues per pound sold(1), (2)

 

$

3.72

 

$

4.02

 

$

5.44

 

$

5.46

 

 

(1)    The revenues per pound reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this MD&A.

(2)    Revenues per pound sold are calculated based on the quantity of V2O5 sold during the stated period.

 

·                  The Company’s trade payables balance at June 30, 2020 with its former off-take partner was $2,440 (note 11) (December 31, 2019 — $67,325). The decrease is primarily attributable to the payment made of approximately $57,441 during Q2 2020. The balance at June 30, 2020 is attributable to the re-measurement of trade receivables / payables for V2O5 sold in the period to April 30, 2020.

 

·                  In connection with the expiry of the Company’s off-take agreement and with the Company managing its own sales activities from May 1, 2020 onwards, the Company’s vanadium products (note 8) are accounted for as finished products inventory (note 7) effective from May 1, 2020. Prior to this, the Company recognized other gains (losses) of $1,998 for Q2 2020 and $1,636 for the six months ended June 30, 2020 (Q2 2019 and six months ended June 30, 2019 — $nil and $nil), relating to realized and unrealized gains and losses on the purchases and sales of vanadium products.

 

4

 

Costs

 

·                  Operating costs of $9,561 in Q2 2020 (Q2 2019 — $24,815) include direct mine and mill costs of $2,180 (Q2 2019 — $16,800), royalties of $1,290 (Q2 2019 — $1,327), product acquisition costs of $2,444 (Q2 2019 — $nil), distribution costs of $312 (Q2 2019 — $nil), inventory write-down of $1,301 (Q2 2019 — $nil) and depreciation and amortization of $2,034 (Q2 2019 — $6,688). The decrease in direct mine and mill costs is primarily attributable to the decrease in sales, with 1,018 tonnes of V2O5 equivalent sold in Q2 2020 (Q2 2019 — 2,480 tonnes). Of the total, $4,119 is related to the Sales & trading segment and $5,442 is related to the Mine properties segment (after the elimination of inter-segment transactions).

 

·                  For the six months ended June 30, 2020, operating costs of $35,809 ($46,598 for the same prior year period) include direct mine and mill costs of $19,674 ($31,367 in the same prior year period), royalties of $3,597 ($3,070 in the same prior year period), product acquisition costs of $2,444, distribution costs of $312, inventory write-down of $1,301 (all $nil in the same prior year period) and depreciation and amortization of $8,481 ($12,161 in the same prior year period). Of the total, $4,119 is related to the Sales & trading segment and $31,690 is related to the Mine properties segment (after the elimination of inter-segment transactions).

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,
2020

 

June 30,
2019(2)

 

June 30,
2020

 

June 30,
2019(2)

 

Cash operating costs per pound(1)

 

$

2.57

 

$

3.59

 

$

2.90

 

$

3.67

 

 

 

 

 

 

 

 

 

 

 

Cash operating costs excluding royalties per pound(1)

 

$

1.89

 

$

3.34

 

$

2.49

 

$

3.37

 

 

 

 

 

 

 

 

 

 

 

Total cash costs(1)

 

$

3.68

 

 

 

$

3.07

 

 

 

 

(1)    The cash operating costs per pound, cash operating costs excluding royalties per pound and total cash costs reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this MD&A.

(2)    Cash operating costs per pound and cash operating costs excluding royalties per pound for this period were calculated on a pounds produced basis. Effective Q1 2020, they are calculated on a pounds sold basis. The amounts presented here are restated on a pounds sold basis. Refer to the “Non-GAAP Measures” section of this MD&A.

 

·                  Cash operating costs excluding royalties per pound(1), which are now calculated on pounds sold, were $1.89 per lb, compared with $3.35 for Q2 2019. The measure for Q2 2020 includes the benefit of tax credits of $2,187, without which the cash operating costs excluding royalties per pound(1) would be $3.04. The decrease seen in Q2 2020 compared with Q2 2019 is largely due to the decreased sales as noted above, an increase in the global recovery level to 80.8% from 79.1% in Q2 2019 and a decrease in professional, consulting and management fees in the Mine properties segment. Total cash costs(2) exclude royalties and include the Company’s total professional, consulting and management fees and other general and administrative expenses. For Q2 2020, total cash costs(2) were $3.68 (the measure for Q2 2020 includes the benefit of tax credits of $2,187, without which the total cash costs(1) would be $4.66).

 

·                  Professional, consulting and management fees in Q2 2020 decreased from Q2 2019 by 37%. The decrease is primarily attributable to costs incurred in 2019 in connection with the redemption of the Notes and the establishment of the Company’s sales and trading function. Of the total professional, consulting and management fee expense in Q2 2020, $516 related to the Sales & trading segment (Q2 2019 — $nil), $435 related to the Mine properties segment (Q2 2019 — $1,195) and $289 related to Corporate (Q2 2019 — $776). For the six months ended June 30, 2020, total professional, consulting and management fees decreased from the same prior year period by 28%. Of the total, $516 related to the Sales & trading segment ($nil in the same prior year period), $1,270 related to the Mine properties segment ($2,147 in the same prior year period) and $1,146 related to Corporate ($1,941 in the same prior year period).

 

·                  The foreign exchange loss increased by 39% or $1,041 in Q2 2020 and by 318% or $9,278 for the six months ended June 30, 2020 as compared with the same prior periods. This is primarily attributable to a strengthening of the U.S. dollar against the Brazilian real by approximately 5% since March 31, 2020 (36% since December 31, 2019) on U.S. dollar denominated costs and liabilities in Brazil and a strengthening of the

 

(1)  The cash operating costs per pound, cash operating costs excluding royalties per pound and total cash costs reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this MD&A.

 

5

 

Canadian dollar against the U.S. dollar by approximately 4% since March 31, 2020 on Canadian dollar denominated assets (weakening of 5% since December 31, 2019). Of the total foreign exchange loss in Q2 2020, a gain of $5 related to the Sales & trading segment (Q2 2019 — $nil), $2,095 related to the Mine properties segment (Q2 2019 — $70) and $1,610 related to Corporate (Q2 2019 —$2,589). For the six months ended June 30, 2020, a gain of $5 related to the Sales & trading segment ($nil in the same prior year period), $18,016 related to the Mine properties segment (gain of $848 in the same prior year period) and a gain of $5,818 related to Corporate (loss of $3,763 in the same prior year period).

 

·                  Finance costs in Q2 2020 decreased from Q2 2019 by 94%. The decrease is primarily attributable to the redemption of Notes that was completed by July 8, 2019 (refer to note 12). Finance costs relating to the credit facilities the Company secured at the end of Q1 2020 (refer to note 12) will be accrued until their settlement in March 2021. Of the total in Q2 2020, $7 related to the Sales & trading segment (Q2 2019 — $nil), $473 related to the Mine properties segment (Q2 2019 — $82) and $(4) related to Corporate (Q2 2019 — $8,051). For the six months ended June 30, 2020, finance costs decreased from the same prior year period by 96%, with $7 related to the Sales & trading segment ($nil in the same prior year period), $591 related to the Mine properties segment ($146 in the same prior year period) and $4 related to Corporate ($13,463 in the same prior year period).

 

·                  Interest income in Q2 2020 decreased from Q2 2019 by 90%. The decrease is primarily due to lower deposit interest rates and lower average cash balances in Q2 2020 as compared with Q2 2019. Of the total in Q2 2020, $217 related to the Mine properties segment (Q2 2019 — $2,503) and $79 related to Corporate (Q2 2019 — $518). For the six months ended June 30, 2020, interest income decreased from the same prior year period by 70%, with $491 related to the Mine properties segment ($2,503 in the same prior year period) and $465 related to Corporate ($656 in the same prior year period).

 

·                  Exploration and evaluation costs in Q2 2020 decreased from Q2 2019 by 94%.  For the six months ended June 30, 2020, the decrease from the same prior period was 67%. This is a result of delays to the Company’s 2020 drilling program caused by the COVID-19 pandemic.

 

·                  Comprehensive loss for Q2 2020 decreased from Q2 2019 by 4% after an increase in the unrealized loss on foreign currency translation of 172%. For the six months ended June 30, 2020, comprehensive loss increased from the same prior year period by 304% after an increase in the unrealized loss on foreign currency translation of 1,251%. The increases in the unrealized loss on foreign currency translation are primarily due to a weakening of the Brazilian real against the U.S. dollar by approximately 5% and 36% since March 31, 2020 and December 31, 2019, respectively.

 

Cash Flows

 

·                  Cash (used in) provided by operating activities decreased from cash provided in Q2 2019 of $22,341 to cash used in Q2 2020 of $63,649. This is primarily due to the change in accounts payable of $51,401 in Q2 2020 when a payment was made to reduce the Company’s trade payables balance with its former off-take partner. A further factor is the change in inventory of $15,931 in Q2 2020 as a consequence of the increased time for the Company to deliver its products and recognize sales as well as the building of strategic stock levels. For the six months ended June 30, 2020, cash used in operating activities was $64,631, compared with cash provided by operating activities of $88,871 in the same prior year period.  The movement is due to similar factors as noted for Q2 2020.

 

·                  Cash provided by financing activities in Q2 2020 changed from cash used in Q2 2019 by $5,893. The movement is primarily due to the repayment of debt of $6,736 and debt issue costs, interest and other associated fees paid of $1,522 in Q2 2019. In addition, interest received in Q2 2020 decreased from $3,090 in Q2 2019 to $360 and cash received from the issuance of common shares and warrants increased from $52 in Q2 2019 to $417.

 

·                  For the six months ended June 30, 2020, cash provided by financing activities changed from cash used in the same prior year period by $100,567. The movement is primarily attributable to the receipt of debt of $24,788 ($nil in the same prior year period), repayment of debt of $nil ($70,447 in the same prior year period) and cash received from the issuance of common shares and warrants of $1,714 ($329 in the same prior year period).

 

6

 

·                  Cash used in investing activities in Q2 2020 decreased from Q2 2019 by $8,974 primarily due to the expansion project being undertaken in 2019. For the six months ended June 30, 2020, the decrease was $11,754 from the same prior year period.

 

·                  The net change in cash in Q2 2020 was a decrease of $67,079, compared with an increase of $1,868 for Q2 2019.  For the six months ended June 30, 2020, the net change in cash was a decrease of $49,284, compared with $5,865 in the same prior year period.

 

Operations

 

·                  Production quantities and non-GAAP unit cost measures(1) are summarized in the following table:

 

 

 

Production

 

Production
Pounds

 

Average Quarterly
V2O5 price

 

Cash operating costs
excluding royalties(1)

 

Total cash
costs(1)

 

Period

 

Tonnes

 

Equivalent(2)

 

$/lb

 

$/lb(3)

 

$/lb(3)

 

Q2 2020

 

2,562

 

5,648,236

 

$

6.14

 

$

1.89

(6)

$

3.68

(6)

Q1 2020

 

2,831

 

6,241,279

 

$

6.07

 

$

2.79

 

$

3.01

 

Q4 2019(4)

 

3,011

 

6,638,111

 

$

5.37

 

$

2.48

 

 

 

Q3 2019(4)

 

2,952

 

6,508,038

 

$

7.16

 

$

2.81

 

 

 

Q2 2019(5)

 

2,515

 

5,544,619

 

$

8.59

 

$

3.34

 

 

 

Q1 2019(5)

 

2,099

 

4,627,497

 

$

16.34

 

$

3.41

 

 

 

Q4 2018(4)

 

2,595

 

5,720,989

 

$

24.53

 

$

3.48

 

 

 

Q3 2018(4)

 

2,563

 

5,650,441

 

$

19.66

 

$

3.05

 

 

 

 

(1)         The cash operating costs excluding royalties per pound and total cash costs reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this MD&A.

(2)         Conversion of tonnes to pounds, 1 tonne = 2,204.62 pounds or lbs.

(3)         For periods prior to Q2 2020, calculated from C$ using average C$/$ foreign exchange rates of 1.32, 1.32, 1.32, 1.34, 1.33, 1.32 and 1.31 for Q1 2020, Q4 2019, Q3 2019, Q2 2019, Q1 2019, Q4 2018 and Q3 2018, respectively.

(4)         Cash operating costs excluding royalties per pound for these periods were calculated on a pounds produced basis. Effective Q1 2020, it is calculated on a pounds sold basis.

(5)         Q2 2019 and Q1 2019 have been calculated and presented on a pounds sold basis. Refer to the “Non-GAAP Measures” section of this MD&A.

(6)         The measure for Q2 2020 includes the benefit of tax credits of $2,187, without which the cash operating costs excluding royalties per pound would be $3.04 and total cash costs would be $4.66.

 

·                  Q2 2020 production of 2,562 tonnes of V2O5 was 2% higher than Q2 2019.  Following the completion of the scheduled preventative maintenance program at the chemical plant in April 2020, V2O5 production in April 2020 was 480 tonnes, with 1,052 tonnes produced in May 2020 and 1,030 tonnes produced in June 2020. The preventative maintenance program in April 2020 contributed to the Q2 2020 production being approximately 10% lower than in Q1 2020.

 

·                  The Q2 2020 global recovery of 80.8% was 2% higher than the 79.1% achieved in Q2 2019 and higher than the 79.9% achieved in Q1 2020. This is primarily due to improvements realized in the kiln and leaching sections. The global recovery in April 2020 was 79.3%, with 79.1% achieved in May and 83.6% achieved in June, demonstrating the improvement through Q2 2020 after the completion of the preventative maintenance program.

 

·                  The planned upgrades to the kiln and improvements in the cooler to increase nameplate capacity to 1,100 tonnes of V2O5 per month are now scheduled for Q4 2020 as a result of precautionary measures taken by the Company in light of the COVID-19 pandemic. This work is not expected to have an impact on the Company’s production in Q4 2020.

 

7

 

SELECTED QUARTERLY INFORMATION

 

Summary financial information for the eight quarters ended June 30, 2020, prepared in accordance with IFRS (in U.S. dollars):

 

Period

 

Revenue

 

Net
Income (Loss)

 

Basic Earnings
(Loss) per Share

 

Total Assets

 

Non-current
Liabilities

 

Q2 2020

 

$

8,350

 

$

(7,012

)

$

(0.01

)

$

268,874

 

$

5,893

 

Q1 2020

 

41,909

 

4,343

 

0.01

 

325,336

 

6,163

 

Q4 2019

 

25,808

 

(4,304

)

(0.01

)

357,661

 

7,342

 

Q3 2019

 

24,131

 

(5,949

)

(0.01

)

338,467

 

6,961

 

Q2 2019

 

21,963

 

(15,298

)

(0.03

)

377,678

 

7,368

 

Q1 2019

 

33,205

 

(1,419

)

(0.00

)

359,164

 

6,706

 

Q4 2018

 

134,508

 

81,792

 

0.16

 

405,895

 

6,509

 

Q3 2018

 

113,034

 

54,011

 

0.11

 

350,028

 

129,940

 

 

The Company’s asset base has fluctuated over the last eight quarters ended June 30, 2020, with the high in Q4 2018 primarily attributable to proceeds from the senior secured notes and amounts receivable.

 

During Q2 2020, the Company recognized revenues of $8,350, which was offset by operating costs of $9,561, finance costs of $476 and a total tax expense of $1,479.

 

During Q1 2020, the Company recognized revenues of $41,909, which was offset by operating costs of $26,248, finance costs of $126 and a total tax recovery of $462.

 

During Q4 2019, the Company recognized revenues of $25,808, which was offset by operating costs of $22,679, finance costs of $39 and a total tax expense of $1,778.

 

During Q3 2019, the Company recognized revenues of $24,131, which was offset by operating costs of $23,673, finance costs of $44 and a total tax recovery of $903.

 

During Q2 2019, the Company recognized revenues of $21,963, which was offset by operating costs of $24,815, finance costs of $8,133 and a total tax expense of $166.

 

During Q1 2019, the Company recognized revenues of $33,205, which was offset by operating costs of $21,783, finance costs of $5,476 and a total tax expense of $2,435.

 

During Q4 2018, the Company recognized revenues of $134,508, which was offset by operating costs of $28,514, finance costs of $6,293 and a total tax expense of $8,859.

 

During Q3 2018, the Company recognized revenues of $113,034, which was offset by operating costs of $27,760, finance costs of $11,368 and a total tax expense of $15,366.

 

OPERATIONS

 

Maracás Menchen Mine

 

Recent Developments

 

Expenditures of $8,780 were capitalized to mine properties, plant and equipment during Q2 2020 (year ended December 31, 2019 — $41,588), including $4,492 of capitalized waste stripping and push back costs (year ended December 31, 2019 — $7,484).

 

Total sales of V2O5 equivalent during Q2 2020 were 1,018 tonnes. This included 260 tonnes of high purity V2O5 (Q2 2019 — 2,480 tonnes, including 360 tonnes of high purity V2O5) and 158 tonnes of V2O5 equivalent of purchased products.

 

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The following table is a summary of production statistics at the Maracás Menchen Mine.

 

 

 

Q2 2020

 

Q2 2019

 

YTD 2020

 

YTD 2019

 

Total Ore Mined (tonnes)

 

257,357

 

308,858

 

461,323

 

558,967

 

Ore Grade Mined - Effective Grade(1) (%)

 

1.20

 

1.21

 

1.38

 

1.25

 

 

 

 

 

 

 

 

 

 

 

Effective Grade of Ore Milled (%)

 

1.29

 

1.49

 

1.42

 

1.50

 

Concentrate Produced (tonnes)

 

99,059

 

102,320

 

199,131

 

188,993

 

Grade of Concentrate (%)

 

3.20

 

3.30

 

3.28

 

3.31

 

Contained V2O5 (tonnes)

 

3,174

 

3,380

 

6,539

 

6,254

 

 

 

 

 

 

 

 

 

 

 

Crushing Recovery (%)

 

97.7

 

98.0

 

98.0

 

97.5

 

Milling Recovery (%)

 

94.7

 

97.9

 

96.6

 

97.3

 

Kiln Recovery (%)

 

91.7

 

88.8

 

90.0

 

88.9

 

Leaching Recovery (%)

 

99.1

 

95.7

 

97.8

 

96.6

 

Chemical Plant Recovery (%)

 

96.1

 

97.1

 

96.5

 

97.4

 

Global Recovery (%)(2)

 

80.8

 

79.1

 

80.4

 

79.4

 

 

 

 

 

 

 

 

 

 

 

V2O5 Produced (Flake + Powder) (tonnes)

 

2,562

 

2,515

 

5,393

 

4,614

 

 

(1)         Effective grade represents the percentage of magnetic material mined multiplied by the percentage of V2O5 in the magnetic concentrate.

(2)         Global recovery is the product of crushing recovery, milling recovery, kiln recovery, leaching recovery and chemical plant recovery.

 

The production of 2,562 tonnes of V2O5 in Q2 2020 was 2% higher than the 2,515 tonnes of V2O5 produced in Q2 2019 and in-line with the budget of 2,570 tonnes. Consistency with the budget was achieved through completing the chemical plant preventative maintenance on time and through the stability of the operations in the months subsequent to the shutdown.

 

The Q2 2020 global recovery of 80.8% was higher than both Q2 2019 and the budget, with strong recovery levels seen in both the kiln and leaching areas of the plant.

 

In Q2 2020, 257,357 tonnes of ore were mined with an effective grade of 1.20% of V2O5. The Company produced 99,059 tonnes of concentrate with an effective grade of 3.20%. The decrease in total ore mined when compared to Q2 2019 is due to operational adjustments to limit the mine site contractor workforce during the COVID-19 pandemic as well as operational restrictions due to the rainy season. The Company used available stocks to feed the crushing plant in order to mitigate the impact on V2O5 production.

 

The Company uses production drilling prior to blasting to better define the ore and waste material being mined. This dilution control procedure has enabled the Company to avoid mining waste rock inside the ore block, resulting in less ore being mined, but with a higher grade than expected. The V2O5 content of the mined ore and the mine sequencing is consistent with that anticipated in the Technical Report (refer to the “Reserves and Resources” section). The Company’s crushing and milling costs have benefited from the implementation of this procedure as a result of the lower throughput of material in these sections of the plant.

 

2020 Guidance

 

The Company’s progress against its sales strategy for 2020 is in line with the Company’s expectations. The Company has committed the majority of its production for sales between July and December 2020. The balance of the Company’s production will be targeted towards spot sales, which the Company expects to be particularly active in 2020.

 

The Company has committed sales of its VPure+ and VPure Flakes products, as well as FeV produced from VPure Flakes.

 

The Company is confident that its nascent but growing sales and trading division will add significant long-term value to the Company.

 

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The Company’s Maracás Menchen Mine continued operations during the six months ended June 30, 2020. The Company continues to monitor the evolving COVID-19 pandemic and has taken preventative measures at its mine site and corporate offices to mitigate potential risks. Although there have been some challenges with logistics, there continues to be no significant impact on the Company’s production or on the shipment of products out of Maracás. To date, there continues to be no significant disruption to the Company’s supply chain for its operations and the level of critical consumables continues to be at normal levels. In addition, the restrictions imposed by the government in Brazil have not significantly impacted operations. The Company continues to follow the recommendations provided by health authorities and all corporate office personnel have been instructed to work from home where possible. The Company continues to staff critical functions at the Maracás Menchen Mine and has encouraged those in non-essential roles to work from home.

 

The Company’s 2020 guidance continues to be presented on a “business as usual” basis. The Company continues to monitor measures being imposed by governments globally to reduce the spread of COVID-19 and the impact that this may have on the Company’s operations, sales and guidance for 2020. Although these restrictions have not, to date, had a material impact on the Company’s operations and sales, the potential future impact of COVID-19 both in Brazil and globally could have a significant impact on the Company’s operations, sales efforts and logistics. The Company is continuing to monitor the rapidly developing impacts of the COVID-19 pandemic and will take all possible actions to help minimize the impact on the Company and its people. However, these actions may significantly change the guidance and forecasts presented and will, if and when necessary, update its guidance accordingly.

 

The Company is evaluating the timing for the construction of the FeV conversion plant, including the deferral of planned 2020 capital expenditures in light of these uncertainties. This deferral will not impact the Company’s commercial strategy in 2020. The Company has decided to proceed with its previously announced V2O3 project, with 2020 capital expenditures estimated to be in the range of $8,000 to $10,000. Refer to the Company’s Annual Information Form for the year ended December 31, 2019 for the full discussion of the Company’s Risks and Uncertainties, including those relating to the COVID-19 pandemic.

 

 

 

 

 

2020 Guidance

Annual V2O5 production

 

tonnes

 

11,750 – 12,250

Annual V2O5 sales

 

tonnes

 

9,500 – 10,000

 

 

 

 

 

Cash operating costs excluding royalties(1), (2)

 

$ /lb

 

3.05 – 3.25

Total cash costs(1), (2)

 

$ /lb

 

3.45 – 3.65

 

 

 

 

 

V2O3 processing plant capital expenditures

 

$

 

8,000 – 10,000

 

 

 

 

 

Sustaining capital expenditures (excluding capitalized stripping costs)

 

$

 

9,000 – 11,000

 

(1)         The cash operating costs excluding royalties and total cash costs reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this MD&A. The estimated average annual R$/$ exchange rate used is approximately 4.50.

(2)         These measures exclude royalties. Every $1/lb in the V2O5 price realized by the Company in revenues adds approximately $0.05/lb in royalties.

 

Reserves and Resources

 

On October 16, 2017, the Company disclosed mineral reserve and mineral resource estimates with an effective date of May 2, 2017 in a report titled Maracás Menchen Project, Bahia, Brazil An Updated Mine Plan, Mineral Reserve and Preliminary Economic Assessment of the Inferred Resources (the “Technical Report”), prepared by GE21 Consultoria Mineral Ltda (“GE21”).

 

The Mineral Resources for the Campbell deposit are estimated from diamond drill core information stored in a secured central database and were evaluated using a geostatistical block modelling approach. A three-dimensional block model was generated to enable grade estimation. The selected block size was based on the geometry of the domain interpretation and the data configuration. The block size of 5 m E by 5 m N by 5 m RL was selected. The “percent” block modelling technique was used to represent the volume of the interpreted wireframe models. Sufficient variables were included in the block model construction to enable grade estimation and reporting.

 

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Resource estimation for the Campbell deposit was undertaken using ordinary kriging (“OK”) as the principal estimation methodology for V2O5. The OK estimates were completed using Gemcom mining software. In 2016, Largo updated mineral resource estimate for the Campbell deposit as a result of depletion of mined resources. This Measured and Indicated resource was used to update the reserve and used for the new mine plan presented in the Technical Report prepared by GE21.

 

The new block model incorporates percent magnetics (percent of magnetic minerals in the mineralized rock) and magnetite concentrate grade for V2O5 and SiO2. No new drilling was available for the estimate; however, it was adjusted for mining completed to date. The updated Mineral Resources for the Campbell deposit are presented below:

 

Campbell Mineral Resources — Maracás Menchen Mine

Effective date: May 2, 2017

 

Category

 

Tonnes
(million)

 

V2O5 head grade
(%)

 

V2O5 contained
(kt)

 

V2O5 in concentrate
(%)

 

Magnetics
(%)

 

Measured (M)

 

18.08

 

1.19

 

215.0

 

3.19

 

30.55

 

Indicated (I)

 

1.70

 

1.28

 

21.7

 

3.12

 

34.64

 

Total M&I

 

19.78

 

1.20

 

236.7

 

3.19

 

30.90

 

Inferred

 

1.65

 

1.20

 

19.8

 

3.10

 

33.08

 

 

Resources within a pit shell using $34.20/t all in operating cost and reported at a 0.45% V2O5 cut-off, reviewed and confirmed by Fabio Valério Xavier (GE21).

 

Mineral Reserves have been estimated for the Campbell deposit with an effective date of May 2, 2017. The mine plan developed in the Technical Report is based on Measured and Indicated resources only as delineated in the table above. Reserves are reported using a sales price of $6.34 per lb of V2O5. The ultimate pit design and mine plan was done to optimize kiln feed. The open pit Mineral Reserve estimate is based on a mine plan and open pit designs developed using modifying parameters including metal prices, metal recovery based on performance of the processing plant, operating and sustaining capital cost estimates based on the production schedule and equipment requirements. Other factors including; dilution, mining recovery, shipping terms, geotechnical characteristics of the rock mass, and the likelihood of obtaining land title, required permits environmental, social and legal licenses may affect the final Mineral Resources and Reserves.

 

The Mineral Reserves presented below were estimated by Porfírio Cabaleiro Rodriguez of GE21, who is a qualified person under NI 43-101 and a Member of the Australian Institute of Geoscientists.

 

Campbell Mineral Reserves — Maracás Menchen Mine

Block dimensions 5x5x5 (m) — Mine Recovery 100% and Dilution 5%

Effective date: May 2, 2017

 

Reserve Category

 

Tonnage
(kt)

 

V2O5 head grade
(%)

 

Magnetics
(%)

 

V2O5 in concentrate
(%)

 

Contained V2O5
(kt)

 

Proven

 

17,570

 

1.14

 

29.66

 

3.21

 

167.3

 

Probable

 

1,440

 

1.26

 

33.89

 

3.20

 

15.6

 

Total in pit Reserve

 

19,010

 

1.15

 

29.98

 

3.21

 

182.9

 

 

Notes to mineral reserve and mineral resource estimates:

(1)         A probable mineral reserve is the economically mineable part of an indicated mineral resource, and in some circumstances, measured mineral resource.

(2)         A proven mineral reserve is, in most common circumstances, the economically mineable part of a measured mineral resource.

(3)         Mineral reserves are included in measured and indicated resources.

(4)         The reference point at which mineral reserves are defined is the point where the ore is delivered from the open pit to the crushing plant.

(5)         The mineral resource and mineral reserve estimates are reported in accordance with the National Instrument 43-101 — Standards of Disclosure for Mineral Projects (NI 43-101) and the CIM Definition Standards on Mineral Resources and Reserves (CIM Definition Standards) as a minimum standard.

 

The Company also completed a revised block model and updated mineral resource estimate for the Near Mine Targets incorporating the drilling from the 2011 program including 72 holes totalling 13,401 metres. The Near Mine Targets which extend north from Gulçari A for eight kilometres include from south to north: Gulçari A Norte, Gulçari B, São José, Novo Amparo and Novo Amparo Norte. All are hosted in the Rio Jacaré Intrusion.

 

The Mineral Resources presented in the following table are considered current (subject to the update for Novo Amparo Norte in the following “Recent Developments” section) and do not include any drill results from the 2018 or 2019 drill programs.

 

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Satellite Deposits Mineral Resources

Effective date: May 2, 2017

 

Deposits

 

Category

 

Tonnes
(kt)

 

V2O5
(%)

 

Contained V2O5
(t)

 

Gulçari A Norte**

 

Inferred

 

9,730

 

0.84

 

81,388

 

Gulçari B**

 

Inferred

 

2,910

 

0.70

 

20,312

 

Novo Amparo**

 

Inferred

 

1,560

 

0.72

 

11,255

 

Novo Amparo Norte**

 

Inferred

 

9,720

 

0.87

 

84,453

 

São José**

 

Inferred

 

3,900

 

0.89

 

34,706

 

Satellite Deposits (Total)**

 

Inferred

 

27,820

 

0.83

 

232,114

 

 

** Resources within a pit shell using $34.20/t all in operating cost and reported at a 0.45% V2O5 cut-off, reviewed and confirmed by Porfírio Cabaleiro Rodriguez (GE21).

 

Notes to mineral reserve and mineral resource estimates:

 

(1)         Mineral resources within a pit shell using $34.20/t all in operating cost and reported at a 0.45% V2O5 cut-off, reviewed and confirmed by Fabio Valério Xavier (GE21).

(2)         Mineral resources are classified as measured, indicated and inferred based on relative levels of confidence in their estimation and on technical and economic parameters consistent with the methods most suitable to their potential commercial exploitation.

(3)         The mineral resource and mineral reserve estimates are reported in accordance with the National Instrument 43-101 — Standards of Disclosure for Mineral Projects (NI 43-101) and the CIM Definition Standards on Mineral Resources and Reserves (CIM Definition Standards) as a minimum standard.

(4)         The PEA is preliminary in nature and includes only inferred mineral resources that are considered too speculative geologically to have any economic consideration applied to them that would enable them to be categorized as a mineral reserve.  There is no certainty that the PEA will be realized. These results have no impact on the results of any pre-feasibility or feasibility with respect to the Maracás Menchen Mine.

 

GE21 recommended the Near Mine Targets be developed sequentially as follows: Novo Amparo Norte, Gulçari A Norte & Gulçari B, São José, Campbell in pit resources and Novo Amparo.

 

The Technical Report prepared by GE21 was designed to allow the Company to more fully optimize operations in order to maximize the Maracás Menchen Mine’s NPV and is based on the production of V2O5 from the Maracás Menchen Mine’s mineral resources as well as from its established mineral reserves. The report does not provide any credit for by-products, however Largo will continue to evaluate the technical and economic viability of all potential by-products. The Technical Report respects the definition of PEA as described in the CSA Staff Notice 43-307 — Mining Technical Report — Preliminary Economic Assessments, issued by the Canadian Securities Administrators on August 16, 2012.

 

Qualified Persons

 

Porfírio Cabaleiro Rodriguez, Mining Engineer, BSc (Mine Eng), MAIG employed by GE21, Leonardo Apparicio da Silva, Mining Engineer, BSc (Min Eng), MSc (Met Eng), MAIG associated to GE21, and Fabio Valerio Xavier, Geologist, BSc, Geol, MAIG associated to GE21, are the Qualified Persons as defined in NI 43-101 responsible for the Technical Report and are all independent of the Company.

 

Quality Assurance Quality Control

 

The scientific and technical information in this reserves and resources section of the MD&A has been reviewed and approved by Porfírio Cabaleiro Rodriguez, Mining Engineer, BSc (Mine Eng), MAIG, GE21 director; Leonardo Apparicio da Silva, Mining Engineer, BSc (Min Eng), MSc (Met Eng), MAIG; and Fabio Valerio Xavier, Geologist, BSc, Geol, MAIG, both employed by GE21, all of whom are Qualified Persons as defined in NI 43-101.

 

Recent Developments

 

The Company completed a two-phase exploration program in 2018. Phase I was a 2,000 metre in-pit drill program designed to further define the reserve block model for production over the next two to three years in the Campbell pit. This program began in the middle of April 2018 and was completed on May 30, 2018. The in-pit program completed 31 holes totalling 2,323 metres. The data was modelled and used for mine planning and development purposes. Consultants from GE21 assisted in the modelling.

 

Phase II included a 4,950 metre drilling program focused on upgrading and expanding the Near Mine Targets and along strike high priority targets. Drilling began on June 4, 2018 with two rigs focused at Novo Amparo Norte and the Company completed 24 holes totalling 4,223 metres prior to December 31, 2018. This included 13 infill and 11 step out holes. On December 19, 2018, the Company announced that this program had expanded the mineralization to the north and south at Novo Amparo Norte. Infill drilling was designed to upgrade the resource category at Novo

 

12

 

Amparo Norte. Additionally, seven holes were drilled on targets south of the Campbell pit. The drill program was completed on October 23, 2018.

 

The Company extended the Phase II definition drilling program at Novo Amparo Norte in the first quarter of 2019.  Diamond drilling was initiated at Novo Amparo Norte on January 15, 2019. In total, 47 diamond drill holes (5,404 metres) were completed. The work focused on increasing confidence in the resource categories and extending mineralisation at depth and along strike. This program was completed mid-February 2019. On June 11, 2019, the Company reported a new resource estimate for Novo Amparo Norte based on 12,911 metres (88 drill holes) of drilling with an effective date of May 31, 2019.

 

Novo Amparo Norte Mineral Resources

Effective date: May 31, 2019

 

Category

 

Tonnes
(million)

 

V2O5 head grade
(%)

 

Magnetics
(%)

 

Magnetic
concentrate V2O5
(%)

 

V2O5 contained in
magnetic concentrate
(t)

 

Measured (M)

 

6.25

 

0.91

 

33.1

 

2.32

 

48,046

 

Indicated (I)

 

5.98

 

0.85

 

28.1

 

2.50

 

41,996

 

Total M&I

 

12.23

 

0.88

 

30.7

 

2.41

 

90,042

 

Inferred

 

11.33

 

0.90

 

31.2

 

2.46

 

86,960

 

 

(1)         Mineral Resources have been classified using the Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”), CIM Standards on Mineral Resources and Reserves, Definitions and Guidelines prepared by the CIM Standing Committee on Reserve Definitions and adopted by the CIM Council.

(2)         Mineral Resources which are not Mineral Reserves do not have demonstrated economic viability.  The Inferred Mineral Resource in this estimate has a lower level of confidence than that applied to the Measured and Indicated Mineral Resource.  It is reasonably expected that a portion of the Inferred Mineral Resource could be upgraded to an Indicated Mineral Resource with continued exploration.

(3)         Magnetic content is determined by Davis Tube Test methodology.  V2O5 content of the magnetic concentrate was determined by XRF79C methodology at the SGS facility in Belo Horizonte, Brazil.

(4)         Assuming only mineralized zones grading 0.45% V2O5 or greater

(5)         Numbers may not add up exactly due to rounding.

 

In Q2 2019 exploration work shifted to the Novo Amparo deposit where 4,646 metres (24 drill holes) of drilling were completed. Drilling was also completed at the São José deposit where 2,813 metres (18 drill holes) of drilling were completed. Further drilling was carried out on the Gulçari A Norte and Gulçari B (now considered as one target). Drilling on all targets focused on extending and upgrading known mineralization as defined in the 2017 Technical Report. The Company also completed 1,177 metres of drilling (three holes) neat the Campbell pit to explore for target horizons down dip and along strike of the current reserve area.

 

In Q4 2019 work focused primarily on the Gulçari A South target where 2,313 metres (16 drill holes) were completed.

 

Based on all diamond drilling across the Near Mine Targets, a new geological interpretation of the Rio Jacaré intrusion was formulated that has helped the Company to better understand the intrusive complex and improve drilling targeting and interpretation of mineralized zones. Diamond drilling was completed in early December 2019 and all analytical data has now been received.

 

Exploration work in Q2 2020 was limited due to COVID-19 restrictions that postponed the planned resource estimation drilling program originally scheduled to commence in April 2020. Diamond drill equipment and crews were mobilised to the site in the second half of June 2020. After following the prescribed COVID-19 quarantine procedures for all drilling personnel, drilling commenced at the Novo Amparo Norte deposit in the last week of June 2020.

 

Outlook

 

The Company has developed an Exploration Master Plan (“EMP”) for 2019 to 2021 to advance known deposits, increase resources and reserves, further evaluate the potential for along strike continuation of the vanadium rich magnetite mineralization and to maintain the Company’s mineral concessions to the north and south of the Campbell deposit. The EMP includes ground magnetic surveys, mapping, sampling, drilling and modelling of deposits on the mineral concessions. Where required, landowners are being contacted for permission to access their lands to perform exploration work. In addition, necessary permits for vegetation suppression are in process and upon receipt, the Company will continue with its planned exploration program.

 

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The Company has planned for 22,500 metres of drilling on the Near Mine Targets in 2020, primarily to upgrade and expand known resources to determine initial mining opportunities. Additional drilling (7,500 metres) has been planned in and around the Campbell pit to test for down dip continuations of known mineralisation.  Mineralisation at the Campbell pit remains open at depth based on current drill results. Exploration on the South Block will include a soil geochemistry sampling survey and 9,600 metres of drilling on higher priority targets based on geological, geophysical and geochemical data.

 

The 2020 exploration program is underway, and the Company does not anticipate any further disruptions to the overall plan. Additional drill equipment and crews were mobilised in July and August 2020 to increase the production of total metres drilled in order to maintain the planned drilling timeframes at the various targets. All drilling personnel observed the COVID-19 quarantine procedures prior to commencing work. As of August 11, 2020, the Company had completed 3,725 metres of drilling in 17 holes at the Novo Amparo Norte deposit and will shortly begin drilling at the Gulçari A Norte deposit.

 

Campo Alegre de Lourdes

 

Recent Developments

 

The Company completed a 1,200-metre drilling program in December 2018 and has finalized the geological and structural mapping needed to satisfy the Company’s contractual requirements and to develop the Company’s knowledge of mineralization.

 

In Q3 2019, a limited drill program was completed at the Morro Branca target at the Campo Alegre de Lourdes project.   From July 5 to August 5, 2019 the Company completed six diamond drill holes (1,016 metres) to test down dip extension of mineralisation and to collect material for additional metallurgical testing at the Morro Branca target.  Internal studies to determine potential recovery of both V2O5 and TiO2 from the vanadiferous titanomagnetite (“VTM”) mineralisation are being complimented with additional work currently underway at SGS Lakefield’s facility in Canada.  This metallurgical testing continues and is being supplemented through the Company’s internal work. The agreement with Companhia Baiana de Pesquisa Mineral (“CBPM”) expired on January 11, 2020.  Prior to expiration the Company met with CBPM representatives and agreed to extend the Research Agreement for an additional two years to allow the Company to continue to evaluate the geological and economic potential of the project and the renewed agreement now extends the working relationship to January 11, 2022.

 

During Q2 2020, the Company incurred $nil in expenditures (Q2 2019 — $nil) at the Campo Alegre de Lourdes project.

 

Outlook

 

Additional metallurgical work is planned in 2020. The Company will continue to evaluate all technical information and will formulate an appropriate work program based on continued metallurgical testing.

 

Northern Dancer

 

Recent Developments

 

Management is not conducting any further work at this time on the Northern Dancer property, as the majority of the Company’s efforts are focused on the Maracás Menchen Mine.

 

During Q2 2020, the Company incurred $1 in expenditures (Q2 2019 — $3) at the Northern Dancer project.

 

Outlook

 

Management is not planning any significant expenditures for the foreseeable future. The Company was issued with an amended Inspector’s Direction for reclamation work with respect to historic drill roads and drill sites on the property. Due to COVID-19 restrictions for travel and work as defined by the Yukon Territory government, the time frame to complete this work was extended to July 1, 2021. The Company is in the process of assessing the Inspector’s Direction and developing an action plan to resolve the outstanding issues.

 

Currais Novos Tungsten Tailings Project

 

Recent Developments

 

Management is not conducting any work at this time on the Currais Novos Tungsten Tailings Project, as the majority of the Company’s efforts are focused on the Maracás Menchen Mine.

 

14

 

Outlook

 

Management is not planning any significant expenditures for the foreseeable future.

 

FINANCIAL INSTRUMENTS

 

Financial assets and financial liabilities at June 30, 2020 and December 31, 2019 were as follows:

 

 

 

 

June 30,
2020

 

December 31,
2019

 

Cash

 

$

78,215

 

$

127,499

 

Restricted cash

 

—

 

76

 

Amounts receivable

 

3,729

 

189

 

Accounts payable and accrued liabilities

 

11,898

 

77,741

 

Current portion of long-term debt

 

24,788

 

—

 

 

The Company’s risk exposures and the impact on the Company’s financial instruments are summarized in note 20. There have been no changes in the risks, objectives, policies and procedures from the previous year.

 

LIQUIDITY AND CAPITAL RESOURCES

 

The Company’s continuance as a going concern is dependent on its ability to maintain profitable levels of operations.

 

At December 31, 2019, the price per lb of V2O5 was between $4.80 and $5.85. This narrowed to a range of between $5.10 and $5.50 at June 30, 2020, with an average of approximately $6.14 for Q2 2020, compared with approximately $8.59 for Q2 2019 and $6.07 for Q1 2020.

 

The average price per lb of V2O5 was approximately $5.30 for July 2020. At the date of the MD&A, the market price of V2O5 was in a range of $5.10 to $5.60 per lb.

 

The Company’s re-measurement of trade receivables / payables (with its former off-take partner) will negatively impact future periods by approximately $269.

 

The Company is continuing to monitor the rapidly developing impacts of the COVID-19 pandemic and will take all possible actions to help minimize the impact on the Company and its people. Given these uncertainties, the Company secured two credit facilities in Q1 2020 to provide it with additional cash resources should the impacts be significant.

 

The adequacy of the Company’s capital structure is assessed on an ongoing basis and adjusted as necessary after taking into consideration the Company’s strategy, vanadium prices, economic conditions and associated risks. To maintain or adjust its capital structure, the Company may adjust capital expenditures, issue new common shares or take on new debt. At June 30, 2020, the Company’s debt balance was $24,788 as a result of the two credit facilities as described below and in note 12.

 

Credit facilities

 

On March 18, 2020, the Company secured a $13,000 credit facility with a bank in Brazil. This facility was fully drawn down and proceeds of R$65,980 ($13,000) were received on March 20, 2020. This facility is due to be repaid as a lump sum payment on March 12, 2021, together with accrued interest at a rate of 3.35% per annum.

 

On March 24, 2020 the Company secured a $11,788 credit facility with a second bank in Brazil. This facility was fully drawn down and proceeds of R$60,000 ($11,788) were received on March 24, 2020. This facility is due to be repaid as a lump sum payment on March 18, 2021, together with accrued interest at a rate of 6.29% per annum.

 

Maracás Menchen Mine

 

The Company’s vanadium production commenced during August 2014, with the first sale of V2O5 flake concluded during September 2014. Since this time, the Company has continued to further ramp up the production and sales of V2O5, as described in the “Maracás Menchen Mine” section above. In connection with the ramp-up, the Company has also evaluated its future financial requirements, including inter alia its sustaining capital and working capital needs for the next 12 months.

 

15

 

At June 30, 2020, the Company had an accumulated deficit of $81,333 since inception (December 31, 2019 — $78,870) and had a net working capital surplus of $80,756 (December 31, 2019 —$78,380) (defined as current assets less current liabilities). The total amount due within 12 months on the Company’s debt is $24,788 (December 31, 2019 — $nil).

 

The following table details the Company’s expected remaining contractual cash flow requirements at June 30, 2020 for its liabilities and commitments with agreed repayment periods. The amounts presented are based on the undiscounted cash flows and therefore, may not equate to the carrying amounts on the consolidated statement of financial position.

 

 

 

Less than
6 months

 

6 months
to 1 year

 

1 to 3 years

 

Over 3 years

 

Accounts payable and accrued liabilities

 

$

11,617

 

$

281

 

$

—

 

$

—

 

Debt

 

—

 

24,788

 

—

 

—

 

Operating and purchase commitments

 

7,090

 

1,273

 

410

 

8

 

 

 

$

18,707

 

$

26,342

 

$

410

 

$

8

 

 

The Company’s principal sources of liquidity are its cash flow from operating activities and cash of $78,215 (December 31, 2019 — $127,499). In response to the vanadium price decreases throughout 2019, the Company has adopted certain measures to manage its liquidity risk including repaying its Notes during the year ended December 31, 2019 and securing two new credit facilities in Q1 2020. Despite these measures, and in conjunction with the current vanadium price environment, a risk exists that the Company will not have sufficient liquidity to meet its obligations as they come due. At June 30, 2020, the Company’s trade receivable with its former off-take partner was in a liability position of $2,440 and was classified as trade payables within accounts payable and accrued liabilities (refer to notes 11 and 20(a)) (December 31, 2019 —$67,325).

 

OUTSTANDING SHARE DATA

 

(Exercise prices presented in this section are in Canadian dollars and also not thousands).

 

At June 30, 2020, there were 563,781 common shares of the Company outstanding. At the date of this MD&A, there were 563,781 common shares of the Company outstanding.

 

At June 30, 2020, under the share compensation plan of the Company, 2,366 RSUs were outstanding and 5,916 stock options were outstanding with exercise prices ranging from C$0.46 to C$3.04 and expiry dates ranging between September 16, 2021 and March 24, 2025. If exercised, the Company would receive proceeds of C$4,884. The weighted average exercise price of the stock options outstanding is C$0.83.

 

As of the date of this MD&A, 2,366 RSUs and 5,916 stock options were outstanding with exercise prices ranging from C$0.46 to C$3.04 and expiry dates ranging between September 16, 2021 and March 24, 2025.

 

At June 30, 2020, 103,994 common share purchase warrants were outstanding with exercise prices ranging from C$0.29 to C$1.15 and expiring between December 31, 2020 and December 13, 2022. If these warrants were exercised, the Company would receive proceeds of C$43,154. The weighted average exercise price of the warrants is C$0.41.

 

As of the date of this MD&A, 103,994 common share purchase warrants were outstanding with exercise prices ranging from C$0.29 to C$1.15 and expiring between December 31, 2020 and December 13, 2022.

 

TRANSACTIONS WITH RELATED PARTIES

 

The Q2 2020 unaudited condensed interim consolidated financial statements include the financial statements of the Company and its subsidiaries. There have been no changes in the Company’s ownership interests in its subsidiaries since December 31, 2019. The Company had transactions with related parties during Q2 2020. Refer to note 17.

 

Additional information regarding the compensation of officers and directors of the Company is disclosed in the Company’s management information circular, which is available under the profile of the Company on SEDAR at www.sedar.com.

 

16

 

COMMITMENTS AND CONTINGENCIES

 

At June 30, 2020, the Company was party to certain management and consulting contracts. Minimum commitments under the agreements are approximately $2,292 and all payable within one year. These contracts also require that additional payments of up to approximately $3,438 be made upon the occurrence of certain events such as change of control. As the triggering event has not occurred, the contingent payments have not been reflected in these consolidated financial statements.

 

In 2008, Largo agreed to sell 100% of its vanadium production to Glencore International AG under an off-take agreement which, following the election by the Company, expired at the end of April 2020. The Company has entered into a number of contracts with third party customers to deliver monthly quantities of the Company’s various vanadium products. A significant proportion of the Company’s monthly vanadium production after April 2020 has been committed, with deliveries beginning in June 2020.

 

The Company’s mining and exploration activities are subject to various federal, provincial and international laws and regulations governing the protection of the environment. These laws and regulations are continually changing and generally becoming more restrictive. The Company has made payments to comply with such laws and regulations.

 

The Company indemnifies its directors and officers against any and all claims or losses reasonably incurred in the performance of their service to the Company to the extent permitted by law. The Company has acquired and maintains liability insurance for its directors and officers.

 

The Company is committed to a minimum amount of rental payments under five leases of office space which expire between October 31, 2020 and December 31, 2023. Minimum rental commitments remaining under the leases are approximately $655, including $245 due within one year. In addition, minimum rental commitments remaining under other short-term leases are approximately $16, all due within one year.

 

At the Company’s Maracás Menchen Mine, the Company has entered into purchase order contracts with remaining amounts due related to goods not received or services not rendered as of June 30, 2020 of $5,817.

 

The Company, through its subsidiaries, is party to legal proceedings in the ordinary course of its operations related to legally binding agreements with various third parties under supply contracts and consulting agreements. At June 30, 2020 two such proceedings were ongoing, each in Brazil. The first relates to a supply agreement for the Maracás Menchen Mine which was filed with the courts in October 2014. The amount claimed totals R$9,900 ($1,808), with a counterclaim filed by Vanádio for R$10,700 ($1,954). A provision of R$1,281 ($234) has been recognized at June 30, 2020 for the probable loss (December 31, 2019 — R$1,324 ($328)). The second proceeding relates to a consulting agreement dispute for which R$3,900 ($712) (December 31, 2019 — R$3,900 ($968)) has been claimed against two of the Company’s subsidiaries. No provision has been recognized for this proceeding. The Company and its subsidiaries are also party to legal proceedings regarding labour matters. A provision was recorded at December 31, 2019 for such proceedings in an amount of R$3,468 ($860). At June 30, 2020, the provision recognized was R$3,206 ($585). The outcome of these proceedings remains dependent on the final judgment, which the Company does not expect to be delivered within the next 12 months. Management does not expect the outcome of any of the remaining proceedings to have a materially adverse effect on the results of the Company’s financial position or results of operations. Should any losses result from the resolution of these claims and disputes, they will be charged to operations in the period that they are determined.

 

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING

 

Disclosure Controls and Procedures

 

The Company’s disclosure controls and procedures (“DC&P”) are designed to provide reasonable assurance that all relevant information is communicated to management to allow timely decisions regarding required disclosure. An evaluation of the effectiveness of the Company’s DC&P, as defined under the rules of the Canadian Securities Administration, was conducted as at December 31, 2019 under the supervision of the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”) and with the participation of management. Based on the results of that evaluation, the CEO and CFO concluded that the Company’s DC&P were effective as at December 31, 2019 providing reasonable assurance that the information required to be disclosed in the Company’s annual filings,

 

17

 

interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported in accordance with securities legislation.

 

Since the December 31, 2019 evaluation, there have been no material changes to the Company’s DC&P.

 

Internal Control over Financial Reporting

 

Internal control over financial reporting (“ICFR”) is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. ICFR should include those policies and procedures that establish the following:

 

·                      maintenance of records in reasonable detail, that accurately and fairly reflect the transactions and dispositions of assets;

 

·                      reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with applicable IFRS;

 

·                      receipts and expenditures are only being made in accordance with authorizations of management or the Board of Directors; and

 

·                      reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial instruments.

 

The Company’s management, under supervision of the CEO and CFO, assessed the effectiveness of the Company’s ICFR based on the criteria established in Internal Control — Integrated Framework (2013) issued by The Committee of Sponsoring Organizations of the Treadway Commission and concluded that as at December 31, 2019, the Company’s ICFR was effective.

 

During the three months ended June 30, 2020, the Company did not make any significant changes to its ICFR that would have materially affected, or reasonably likely to materially affect, its ICFR.

 

Limitations of Disclosure Controls and Procedures and Internal Control over Financial Reporting

 

The Company’s management, including the CEO and CFO, believe that due to inherent limitations, any DC&P or ICFR, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that any design will not succeed in achieving its stated goals under all potential future conditions. Accordingly, because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Additionally, management is required to use judgment in evaluating DC&P and ICFR.

 

SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS

 

The preparation of the unaudited condensed interim consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Actual outcomes could differ from these estimates. These unaudited condensed interim consolidated financial statements include estimates, which, by their nature, are uncertain. The impacts of such estimates are pervasive throughout the unaudited condensed interim consolidated financial statements and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised, and the revision affects both current and future periods.

 

Significant areas requiring the use of estimates and assumptions relate to the determination of mineral reserve estimates and the impact on stripping costs, useful lives of mine properties, plant and equipment, impairment analysis of non-financial assets and estimates of the timing of outlays for asset retirement obligations. Other significant areas include the valuation of mine properties, plant and equipment and development properties, estimates of provisions for environmental rehabilitation, current and deferred taxes and contingencies. Refer to note 4(d) of the annual consolidated financial statements for the year ended December 31, 2019 for a detailed description of these areas of significant judgment, estimates and assumptions. Actual results could differ from those estimates.

 

18

 

CHANGES IN ACCOUNTING POLICIES

 

The basis of presentation, and accounting policies and methods of their application in the Q2 2020 unaudited condensed interim consolidated financial statements are consistent with those used in the Company’s annual consolidated financial statements for the year ended December 31, 2019, except as disclosed in notes 3 and 5.

 

NON-GAAP(2) MEASURES

 

The Company uses certain non-GAAP financial performance measures in its MD&A, which are described in the following section.

 

Revenues Per Pound

 

The Company’s MD&A refers to revenues per pound sold, a non-GAAP performance measure that is used to provide investors with information about a key measure used by management to monitor performance of the Company.

 

This measure, along with cash operating costs and total cash costs, is considered to be one of the key indicators of the Company’s ability to generate operating earnings and cash flow from its Maracás Menchen Mine and sales activities. This revenues per pound measure does not have any standardized meaning prescribed by IFRS and differs from measures determined in accordance with IFRS. This measure is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. This measure is not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.

 

The following table provides a reconciliation of this measure per pound sold to revenues as per the Q2 2020 unaudited condensed interim consolidated financial statements.

 

 

 

Three months ended

Six months ended

 

 

 

June 30,
2020

 

June 30,
2019

 

June 30,
2020

 

June 30,

2019

 

Revenues(1)

 

$

8,350

 

$

21,963

 

$

50,259

 

$

55,168

 

V2O5 equivalent sold (000s lb)

 

2,244

 

5,467

 

9,233

 

10,097

 

Revenues per pound sold ($/lb)

 

$

3.72

 

$

4.02

 

$

5.44

 

$

5.46

 

 

(1)         As per note 21.

 

Cash Operating Costs Per Pound

 

The Company’s MD&A refers to cash operating costs per pound, a non-GAAP performance measure, in order to provide investors with information about a key measure used by management to monitor performance. This information is used to assess how well the Maracás Menchen Mine is performing compared to plan and prior periods, and also to assess its overall effectiveness and efficiency.

 

Cash operating costs includes mine site operating costs such as mining costs, plant and maintenance costs, sustainability costs, mine and plant administration costs, royalties, distribution costs and sales, general and administrative costs (all for the mine properties segment), but excludes depreciation and amortization, share-based payments, foreign exchange gains or losses, commissions, reclamation, capital expenditures and exploration and evaluation costs. Operating costs not attributable to the mine properties segment are also excluded, including product acquisition costs and inventory write-downs. These costs are then divided by the pounds of vanadium sold that was produced by the Maracás Menchen Mine to arrive at the cash operating costs per pound. Prior to 2020, these costs were divided by the pounds of production from the Maracás Menchen Mine, rather than pounds sold. These periods have been recalculated using pounds sold in the following table. This measure differs to the new total cash costs non-GAAP measure the Company will use to measure its overall performance starting in 2020 (see later in this section).

 

These measures, along with revenues, are considered to be one of the key indicators of the Company’s ability to generate operating earnings and cash flow from its Maracás Menchen Mine. These cash operating costs measures

 

(2)  GAAP — Generally Accepted Accounting Principles.

 

19

 

do not have any standardized meaning prescribed by IFRS and differ from measures determined in accordance with IFRS. These measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These measures are not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.

 

In addition, the Company’s MD&A refers to cash operating costs excluding royalties. This is a non-GAAP performance measure and is calculated as cash operating costs less royalties, as disclosed in the following table.

 

The following table provides a reconciliation of cash operating costs per pound for the Maracás Menchen Mine to operating costs as per the Q2 2020 unaudited condensed interim consolidated financial statements.

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,
2020

 

June 30,
2019

 

June 30,
2020

 

June 30,
2019

 

Operating costs(1)

 

$

9,561

 

$

24,815

 

$

35,809

 

$

46,598

 

Professional, consulting and management fees(2)

 

435

 

1,195

 

1,270

 

2,147

 

Other general and administrative expenses(2)

 

528

 

290

 

765

 

491

 

Less: product acquisition costs(1)

 

(2,444

)

—

 

(2,444

)

—

 

Less: inventory write-down(3)

 

(1,176

)

—

 

(1,176

)

—

 

Less: depreciation and amortization expense(1)

 

(2,034

)

(6,688

)

(8,481

)

(12,161

)

Cash operating costs

 

4,870

 

19,612

 

25,743

 

37,075

 

Less: royalties(1)

 

(1,290

)

(1,327

)

(3,597

)

(3,070

)

Cash operating costs excluding royalties

 

3,580

 

18,285

 

22,146

 

34,005

 

Produced V2O5 sold (000s lb)(4)

 

1,896

 

5,467

 

8,885

 

10,097

 

Cash operating costs per pound ($/lb)(4)

 

$

2.57

(5)

$

3.59

 

$

2.90

(5)

$

3.67

 

Cash operating costs excluding royalties per pound ($/lb)(4)

 

$

1.89

(5)

$

3.34

 

$

2.49

(5)

$

3.37

 

 

(1)         As per note 22.

(2)         As per the Mine properties segment in note 18.

(3)         As per note 7.

(4)         Cash operating costs per pound and cash operating costs excluding royalties per pound for Q2 2019 were previously calculated and presented on a pounds produced basis (V2O5 produced (000s lb) = 5,545; V2O5 sold (000s lb) = 5,467). These measures have been calculated and presented on a pounds sold basis in this MD&A.

(5)         The measure for Q2 2020 includes the benefit of tax credits of $2,187, without which the cash operating costs per pound would be $3.72 and $3.14 for the three and six month periods ended June 30, 2020, respectively, and the cash operating costs excluding royalties per pound would be $3.04 and $2.74 for the three and six month periods ended June 30, 2020, respectively.

 

Total Cash Costs

 

The Company’s MD&A refers to total cash costs, a non-GAAP performance measure, in order to provide investors with information about a key measure used by management to monitor performance. This information is used to assess how well the Company is performing at producing and selling vanadium products compared to plan and prior periods, and also to assess its overall effectiveness and efficiency.

 

Total cash costs are a non-GAAP performance measure that includes all operating costs, sales and distribution costs and the Company’s total professional, consulting and management fees and other general and administrative expenses. Total cash costs exclude royalties, depreciation and amortization, share-based payments, foreign exchange gains or losses, commissions, reclamation costs, exploration and evaluation costs and capital expenditures. These costs are then divided by the total pounds of vanadium sold by the Company to arrive at total cash costs.

 

This measure differs from cash operating costs per pound in that it includes all operating costs, sales and distribution costs, professional, consulting and management fees and other general and administrative expenses, rather than just those from the Mine properties segment, and is calculated on total V2O5 equivalent pounds sold rather than pounds sold that was produced by the Maracás Menchen Mine. The Company believes this will be a more accurate reflection of its all-in unit costs.

 

This total cash costs measure does not have any standardized meaning prescribed by IFRS and differs from measures determined in accordance with IFRS. This measure is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

 

20

 

This measure is not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.

 

The following table provides a reconciliation of total cash costs to operating costs as per the Q2 2020 unaudited condensed interim consolidated financial statements.

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,
2020

 

June 30,
2020

 

Operating costs(1)

 

$

9,561

 

$

35,809

 

Professional, consulting and management fees(2)

 

1,240

 

2,932

 

Other general and administrative expenses(2)

 

787

 

1,659

 

Less: depreciation and amortization expense(1)

 

(2,034

)

(8,481

)

Less: royalties(1)

 

(1,290

)

(3,597

)

 

 

$

8,264

 

$

28,322

 

V2O5 equivalent sold (000s lb)

 

2,244

 

9,233

 

Total cash costs ($/lb)

 

$

3.68

(3)

$

3.07

(3)

 

(1)         As per note 22.

(2)         As per the condensed interim consolidated statement of income (loss) and comprehensive income (loss).

(3)         The measure for Q2 2020 includes the benefit of tax credits of $2,187, without which the total cash costs would be $4.66 and $3.30 for the three and six month periods ended June 30, 2020, respectively.

 

RISKS AND UNCERTAINTIES

 

The Company is subject to various business, financial and operational risks that could materially adversely affect the Company’s future business, operations and financial condition. These risks could cause such future business, operations and financial condition to differ materially from the forward-looking statements and information contained in this MD&A and as described in the Cautionary Statement Regarding Forward-Looking Information found in this MD&A.

 

The Company’s business activities expose it to significant risks due to the nature of mining, development and exploration activities. The ability to manage these risks is a key component of the Company’s business strategy.  Management is forward looking in its assessment of risks. Identification of key risks occurs in the course of business activities, pursuing approved strategies and as part of the execution of risk oversight responsibilities at the management and Board of Directors’ level.

 

For a full discussion of the Company’s Risks and Uncertainties, please refer to the Annual Information Form for the year ended December 31, 2019, which is filed to the Company’s profile on SEDAR at www.sedar.com.

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

 

The information presented in this MD&A contains “forward-looking information” and “forward-looking statements” within the meaning of applicable Canadian and United States securities laws concerning the Company’s projects, capital, anticipated financial performance, business prospects and strategies and other general matters. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those included in the forward-looking information. The use of words such as “intend”, “anticipate”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “should”, “believe” and similar expressions are intended to identify forward-looking information. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance are not statements of historical fact and may constitute forward-looking information. Statements relating to mineral resources are also forward-looking information, as they involve the implied assessment, based on certain estimates and assumptions that the mineral resources described can be profitably produced in the future. There is no certainty that it will be commercially viable to produce any portion of the mineral resources.

 

Forward-looking information includes statements with respect to: the Company’s goals regarding development of its projects and further exploration and development of its properties; the Company’s proposed plans for advancing its projects, and potential future exploration and development projects; expectations regarding the

 

21

 

continuity of mineral deposits; future prices of V2O5; future production at our Maracás Menchen Mine; the extent and overall impact of the COVID-19 pandemic; the results in the Technical Report including resource estimates; expectations regarding any environmental issues that may affect planned or future exploration and development programs and the potential impact of complying with existing and proposed environmental laws and regulations; receipt and timing of third party approvals; government regulation of mineral exploration and development operations in Brazil; expectations regarding any social or local community issues in Brazil that may affect planned or future exploration and development programs; and statements in respect of V2O5 demand and supply. These statements and information are only predictions based on current information and knowledge, some of which may be attributed to third party industry sources. Actual future events or results may differ materially. Undue reliance should not be placed on such forward-looking information, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. By its nature, forward-looking information involves numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking information will not be realized.

 

The following are some of the assumptions upon which forward-looking information is based: that general business and economic conditions will not change in a material adverse manner; demand for, and stable or improving price of V2O5; receipt of regulatory and governmental approvals, permits and renewals in a timely manner; that the Company will not experience any material accident, labour dispute or failure of plant or equipment or other material disruption in the Company’s operations at the Maracás Menchen Mine; the availability of financing for operations and development; the Company’s ability to procure equipment and operating supplies in sufficient quantities and on a timely basis; that planned expansion at the Maracás Menchen Mine will be completed in budget and in a reasonable timeframe and that the results of such expansion will be sufficient to expand the existing resources consistent with management’s expectations; that the estimates of the resources and reserves at the Maracás Menchen Mine are within reasonable bounds of accuracy (including with respect to size, grade and recovery); that the Company’s current expansion of development programs and objectives can be achieved; the Company’s ability to attract and retain skilled personnel and directors; and the accuracy of the Company’s mineral resource estimates (including size, grade and recoverability) and the geological, operational and price assumptions on which these are based.

 

Actual results could differ materially from those anticipated in this forward-looking information as a result of the risks and uncertainties including, without limitation:  volatility in prices of, and demand for, V2O5; risks inherent in mineral exploration and development; uncertainties associated with estimating mineral resources; uncertainties related to title to the Company’s mineral projects; revocation of government approvals; tightening of the credit markets, global economic uncertainty and counterparty risk; failure of plant, equipment or processes to operate as anticipated; unexpected events and delays during construction and development; competition for, among other things, capital and skilled personnel; geological, technical and drilling problems; fluctuations in foreign exchange or interest rates and stock market volatility; rising costs of labour and equipment; risks associated with political and/or economic instability in Brazil; inherent uncertainties involved in the legal dispute resolution process, including in foreign jurisdictions; changes in income tax and other laws of foreign jurisdictions; and other factors discussed under “Risk Factors” in the Company’s Annual Information Form for the year ended December 31, 2019 which is filed to the Company’s profile on SEDAR at www.sedar.com, and any additional risks as included in “Risks and Uncertainties” above. Assumptions relating to the potential mineralization of the Maracás Menchen Mine are discussed in the Technical Report which is available under the Company’s profile on SEDAR.

 

Additional risks and uncertainties not currently known to the Company, or that the Company currently deems to be immaterial, may also materially and adversely affect the Company’s business and prospects. Should one or more of these risks and uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in forward-looking information. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking information, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. The reader is cautioned not to place undue reliance on forward-looking information.

 

The forward-looking information is presented in this MD&A for the purpose of assisting investors in understanding the Company’s plans, objectives and expectations in making an investment decision and may not be appropriate

 

22

 

for other purposes. This forward-looking information is expressly qualified in its entirety by this cautionary statement. Forward-looking information contained in this MD&A or documents incorporated herein by reference are made as of the date hereof or the document incorporated herein by reference, as applicable, and are accordingly subject to change after such date. The Company disclaims any obligation to update any such forward-looking information to reflect events or circumstances after the date of such information, or to reflect the occurrence of anticipated or unanticipated events, except as required by law.

 

The information presented contains “forward-looking statements”, within the meaning of the United States Private Securities Litigation Reform Act of 1995, and “forward-looking information” under similar Canadian legislation, concerning the business, operations and financial performance and condition of the Company. Forward-looking statements and forward-looking information include, but are not limited to, statements with respect to the estimation of mineral reserves and mineral resources; the realization of mineral reserve estimates; the timing and amount of estimated future production; costs of production; metal prices and demand for materials; capital expenditures; success of exploration and development activities; permitting time lines and permitting, mining or processing issues; government regulation of mining operations; environmental risks; and title disputes or claims. Generally, forward-looking statements and forward-looking information can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “guidance”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”.  Certain terms appearing in the following table are defined previously in this MD&A.  This table contains the material forward-looking statements made by the Company in this MD&A, the assumptions made by the Company in making those statements and the risk factors associated with those assumptions.

 

Forward-looking
Statements

 

Assumptions

 

Risk Factors

The Q2 2020 unaudited condensed interim consolidated financial statements were prepared on a going concern basis. The going concern basis assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business.

 

The Company has assumed that it will be able to continue in operation for the foreseeable future and will be able to discharge its liabilities and commitments in the normal course of business, as it anticipates that it will address working capital and other shortfalls through positive cash flow from operations.

 

The Company’s continuance as a going concern is dependent on its ability to maintain profitable levels of operations.


Given the volatility in the market price of V2O5 since December 31, 2019, the Company anticipates that it could continue to realize significant re-measurements of trade receivables / payables in future periods until such time as prices stabilize or the off-take agreement ends.


The adequacy of the Company’s capital structure is assessed on an ongoing basis and adjusted as necessary after taking into consideration the Company’s strategy, vanadium prices, economic conditions and associated risks. To maintain or adjust its capital structure, the Company may adjust capital expenditures, issue new common shares or take on new debt. At June 30, 2020, the Company’s debt balance was $24,788 as a result of securing two credit facilities as described in note 12.

 

 

 

 

 

Production volumes are expected to achieve the expanded nameplate capacity of 1,000 tonnes per month during 2020.

 

The Company assumes that consistent production levels will continue at a level of or in excess of 1,000 tonnes per month.

 

The Company prepares future production estimates with respect to existing operations.


Actual production and costs may vary from the estimates for a variety of reasons such as estimates of grade, tonnage, dilution and metallurgical and other characteristics of the ore varying from the actual ore mined, revisions to mine plans, risks and hazards associated with mining, adverse weather conditions,

 

23

 

Forward-looking
Statements

 

Assumptions

 

Risk Factors

2020 Production Guidance:
11,750 – 12,250 tonnes

 

 

 

unexpected labour shortages or strikes, equipment or design failures and other interruptions in production.


Production costs may also be affected by increased mining costs, variations in predicted grades of the deposits, increases in level of ore impurities, labour costs, raw material costs, inflation and fluctuations in currency exchange rates. Failure to achieve production targets or cost estimates could have a material adverse impact on the Company’s sales, profitability, cash flow and overall financial performance.


In the event that the Company obtains debt financing, repayment terms associated with such financing will likely be based, among other things, on production schedule estimates. Any failure to meet such timelines or to produce amounts forecast may constitute defaults under such debt financing, which could result in the Company having to repay loans.

 

 

 

 

 

2020 Costs Guidance:
Cash operating costs excluding royalties(1)
$3.05 – 3.25

Total cash costs(1)
$3.45 – 3.65

(1) These measures are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this MD&A.

 

The Company assumes that its current estimation of future operating costs is accurate, as it is largely based on the current cost profile of operations at the Maracás Menchen Mine.

 

Capital and operating cost estimates made by management with respect to future projects, or current operations in the early stages of production are estimates which are in turn based, among other things, on interpretation of geological data, feasibility studies, anticipated climactic conditions and other information.


Any or all of the above could affect the accuracy of the estimates including unanticipated changes in grade and tonnage to be mined and processed; incorrect data on which engineering assumptions are made; unanticipated transportation costs; accuracy of equipment and construction cost estimates; difficulty or failure to meet scheduled construction completion dates, facility or equipment commissioning dates, or metal production dates; poor or unsatisfactory construction quality resulting in failure to meet completion, commissioning or production dates; increased expenditures required as a failure to meet completion, commissioning or production dates; capital overrun related to the completion of any construction phase including capital overrun associated with demobilization of construction workers and contractors; labour negotiations; unanticipated costs relating to the commencement of operations, ramp up and production sustainment; changes in government regulation (including regulations regarding prices, cost of consumables, royalties, duties, taxes, permitting and restrictions on production quotas or exportation of the Company’s products; and change in commodity input costs and quantities).

 

24

 

Forward-looking
Statements

 

Assumptions

 

Risk Factors

Sustaining capital expenditures of approximately $9,000 to $11,000 are expected to be required in 2020 to sustain current operational capacity (excluding capitalized waste stripping costs).

 

Management assumes that its current estimation of capital expenditures is accurate, as based on operational estimates produced and current experience with operations.

 

Capital and operating costs estimates made by management with respect to future projects, or current operations in production, or not yet in the production phase are estimates which are in turn based, among other things, on interpretation of geological data, feasibility studies, anticipated climactic conditions and other information.


Any or all of these can affect the accuracy of the estimates including unanticipated changes in grade and tonnage to be mined and processed; incorrect data on which engineering assumptions are made; unanticipated transportation costs; accuracy of equipment and construction cost estimates; difficulty or failure to meet scheduled construction completion dates, facility or equipment commissioning dates, or metal production dates; poor or unsatisfactory construction quality resulting in failure to meet completion, commissioning or production dates; increased expenditures required as a failure to meet completion, commissioning or production dates; capital overrun related to the completion of any construction phase including capital overrun associated with demobilization of construction workers and contractors; labour negotiations; unanticipated costs relating to the commencement of operations, ramp up and production sustainment; changes in government regulation (including regulations regarding prices, cost of consumables, royalties, duties, taxes, permitting and restrictions on production quotas or exportation of the Company’s products; and change in commodity input costs and quantities).

 

Forward-looking statements and forward looking information are based on the opinions and estimates of management as of the date such statements are made, and they are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking statements or forward looking information, including, but not limited to, unexpected events during operations; variations in ore grade; risks inherent in the mining industry; delay or failure to receive board approvals;  timing and availability of external financing on acceptable terms; risks relating to international operations; actual results of exploration activities; conclusions of economic valuations; changes in project parameters as plans continue to be refined; and fluctuating metal prices and currency exchange rates.

 

Although management of the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements or forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements and forward-looking information. The Company does not undertake to update any forward-looking statements or forward-looking information that are incorporated by reference herein, except in accordance with applicable securities laws.

 

25

 

Investors are advised that National Instrument 43-101 of the Canadian Securities Administrators (“NI 43-101”) requires that each category of mineral reserves and mineral resources be reported separately.  Mineral resources that are not mineral reserves do not have demonstrated economic viability.

 

Cautionary Note to U.S. Investors Concerning Estimates of Measured, Indicated or Inferred Resources

 

This MD&A uses the terms “measured”, “indicated” and “inferred” mineral resources. United States investors are advised that while such terms are recognized and required by Canadian regulations, the United States Securities and Exchange Commission does not recognize them. Inferred mineral resources have a great amount of uncertainty as to their existence, and as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or other economic studies. United States investors are cautioned not to assume that all or any part of measured or indicated mineral resources will ever be converted into mineral reserves. United States investors are also cautioned not to assume that all or any part of an inferred mineral resource exists or is economically or legally mineable.

 

26

Exhibit 99.32

 

 

PRESS RELEASE

July 16, 2020

 

Largo Resources Reports V2O5 Production of 2,562 Tonnes in Q2 2020 and

Announces Cost Efficient Nameplate Capacity Increase by 10%

 

·             V2O5 production of 2,562 tonnes (5.6 million lbs(1)) in Q2 2020, a 2.0% increase over Q2 2019

 

·             Global V2O5 recovery rate(2) of 80.8% in Q2 2020 compared to 79.1% in Q2 2019

 

·             Nameplate capacity increase by 10%: Planned kiln upgrades and cooler maintenance scheduled for Q4 2020 with a capex of US$1.3 million

 

·             First independent vanadium shipment made on May 14, 2020

 

·             Operations at the Maracás Menchen Mine continued in Q2 2020; 2020 guidance maintained on a “business as usual” basis

 

TORONTO — Largo Resources Ltd. (“Largo” or the “Company”) (TSX: LGO) (OTCQX: LGORF) announces second quarter 2020 production results from its Maracás Menchen Mine with production of 2,562 tonnes (5.6 million lbs) of vanadium pentoxide (“V2O5”) produced at an average global recovery rate(2) of 80.8%.

 

Paulo Misk, President and Chief Executive Officer for Largo, stated: “Following the completion of the enhanced preventative maintenance program in the chemical plant, the Company’s operations performed well in Q2 2020 with total V2O5 production of 2,562 tonnes and a global V2O5 recovery rate of 80.8%. This represents a 2.0% increase in production over Q2 2019 and the strong production in May and June further demonstrates the plant’s ability to perform above its current nameplate capacity of 1,000 tonnes of V2O5 per month. In Q4 2020, we expect to perform the planned upgrades to the kiln and improvements in the cooler to increase the nameplate capacity to 1,100 tonnes of V2O5 per month. The total capex for this project is approximately US$1.3 million and we do not expect this work to impact production in Q4 2020.”

 

He continued: “We completed our first independent vanadium shipment on May 14, 2020 marking a propitious moment for the Company as we begin to capture the full economic and strategic value associated with our transition to commercial independence. The Company continues to maintain its 2020 guidance on a business as usual basis and has not experienced any significant impacts to operations or to the shipment of material as a result of the global COVID-19 pandemic. We continue to prioritize the health and safety of our workforce and extend our support to our local communities as we proactively manage the circumstances related to the global COVID-19 pandemic.”

 

A summary of Q2 2020 production results from the Maracás Menchen Mine is presented below:

 

Maracás Menchen Mine Production

 

Q2 2020

 

Q1 2020

 

Q3 2019

 

Total Ore Mined (tonnes)

 

257,357

 

203,966

 

267,257

 

Ore Grade Mined - Effective Grade (%)(3)

 

1.20

 

1.61

 

1.52

 

 

 

 

 

 

 

 

 

Effective Grade of Ore Milled (%)(3)

 

1.29

 

1.59

 

1.44

 

Concentrate Produced (tonnes)

 

99,059

 

100,072

 

92,629

 

Grade of Concentrate (%)

 

3.20

 

3.36

 

3.26

 

 

 

Contained V2O5 (tonnes)

 

3,174

 

3,365

 

3,016

 

 

 

 

 

 

 

 

 

Crushing Recovery (%)

 

97.7

 

98.3

 

96.5

 

Milling Recovery (%)

 

94.7

 

98.4

 

97.0

 

Kiln Recovery (%)

 

91.7

 

88.3

 

88.8

 

Leaching Recovery (%)

 

99.1

 

96.6

 

97.2

 

Chemical Plant Recovery (%)

 

96.1

 

96.8

 

96.7

 

Global Recovery (%)(2)

 

80.8

 

79.9

 

78.1

 

 

 

 

 

 

 

 

 

V2O5 produced (Flake + Powder) (tonnes)

 

2,562

 

2,831

 

2,952

 

V2O5 produced (equivalent pounds)(1)

 

5,648,236

 

6,241,279

 

6,508,038

 

 

Q2 2020 Production Results

 

Total production from the Maracas Menchen Mine was 2,562 tonnes of V2O5, representing an increase of 2.0% over Q2 2019. Following the completion of the Company’s preventative maintenance program, V2O5 production in April 2020 was 480 tonnes with 1,052 tonnes produced in May 2020 and 1,030 tonnes in June 2020.

 

In Q2 2020, 257,357 tonnes of ore with an effective V2O5 grade(3) of 1.20% were mined compared to 308,858 tonnes in Q2 2019 with an effective V2O5 grade(3) of 1.21%. The crushing unit was fed with 304,560 tonnes with an effective V2O5 grade(3) of 1.03% and the Company produced 99,059 tonnes of concentrate ore with an average V2O5 grade(3) of 3.20%. The decrease in total ore mined when compared to Q2 2019 is due to operational adjustments to limit the Company’s contracted mining workforce during the COVID-19 pandemic as well as operational restrictions due to the rainy season. During this time. the Company used available stocks to feed the crushing plant in order to mitigate the impact on V2O5 production.

 

Global V2O5 recovery rates(2) averaged 80.8% in Q2 2020 representing a 2% increase over Q2 2019 (79.1%). This is primarily attributable to improved recoveries in the kiln and leaching section of the plant during the quarter.

 

COVID-19 Update: 2020 Guidance Maintained

 

The Company continues to monitor the evolving COVID-19 pandemic and has taken preventative measures at its mine site and corporate offices to mitigate potential risks. There continues to be no significant impact on our production or on our shipment of product out of Maracás. To date, there continues to be no significant disruption to the Company’s supply chain for its operations and the level of critical consumables continues to be at normal levels. In addition, the restrictions imposed by the government in Brazil have not significantly impacted operations. The Company continues to follow the recommendations provided by health authorities and all corporate office personnel have been instructed to work from home where possible. The Company continues to staff critical functions at the mine site and has encouraged those in non-essential roles to work from home.

 

In addition, the Company’s 2020 guidance continues to be presented on a “business as usual” basis.  Largo continues to monitor measures being imposed by governments globally to reduce the spread of COVID-19 and the impact that this may have on our operations and guidance for 2020. Although these restrictions have not, to date, had a material impact on our operations, the potential future impact of COVID-19 both in Brazil and globally could have a significant impact on our operations, sales efforts and logistics. The Company will continue to monitor the situation and will, if and when necessary, update its guidance accordingly.

 

About Largo Resources

 

Largo Resources is an industry preferred producer and supplier of vanadium. Largo’s VPURE™ and VPURE+™ products are sourced from one of the world’s highest-grade vanadium deposits at the Maracás Menchen Mine

 

 

located in Brazil. The Company’s common shares are principally listed on the Toronto Stock Exchange under the symbol “LGO”. For more information on Largo and VPURE™, please visit www.largoresources.com and www.largoVPURE.com.

 

For further information, please contact:

 

Alex Guthrie
Manager, Investor Relations and Communications
aguthrie@largoresources.com
Tel: +1 416-861-9797

 

Neither the Toronto Stock Exchange (nor its regulatory service provider) accepts responsibility for the adequacy or accuracy of this press release.

 

Forward-looking Information:

 

This press release contains forward-looking information under Canadian securities legislation, some of which may be considered “financial outlook” for the purposes of application Canadian securities legislation (“forward-looking statements”). Forward-looking information in this press release includes, but is not limited to, statements with respect to the timing and amount of estimated future production and sales; costs of future activities and operations; the extent of capital and operating expenditures; and the extent and overall impact of the COVID-19 pandemic in Brazil and globally. Forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. All information contained in this news release, other than statements of current and historical fact, is forward looking information. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Largo to be materially different from those expressed or implied by such forward-looking statements, including but not limited to those risks described in the annual information form of Largo and in its public documents filed on SEDAR from time to time. Forward-looking statements are based on the opinions and estimates of management as of the date such statements are made. Although management of Largo has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Largo does not undertake to update any forward-looking statements, except in accordance with applicable securities laws. Readers should also review the risks and uncertainties sections of Largo’s annual and interim MD&As which also apply.

 

(1)  Conversion of tonnes to pounds, 1 tonne = 2,204.62 pounds or lbs.

 

(2)  Global recovery is the product of crushing recovery, milling recovery, kiln recovery, leaching recovery and chemical plant recovery.

 

(3)  Effective grade represents the percentage of magnetic material mined multiplied by the percentage of V2O5 in the magnetic concentrate.

 

Exhibit 99.33

 

 

PRESS RELEASE

July 20, 2020

 

Largo Resources Releases its 2019 Sustainability Report

 

TORONTO — Largo Resources Ltd. (“Largo” or the “Company”) (TSX: LGO) (OTCQX: LGORF) is pleased to announce the release of its 2019 sustainability report, highlighted by new performance metrics and reporting standards.

 

Paulo Misk, President and Chief Executive Officer stated: “Largo’s second annual report on sustainability performance marks another significant milestone in achieving our objective of becoming an industry leader in responsible mining practices. In 2019, we increased our diligence in measuring ourselves against rigorous international standards by engaging EcoVadis, a third-party corporate social responsibility auditor, and by making material progress toward ISO certification. In addition, our 2019 sustainability report is now guided, in part, by SASB, the Sustainability Accounting Standards Board. This approach to sustainability reporting sets a new standard for open and transparent communication and we plan to continually improve our disclosures in the years to come.”

 

He continued: “Vanadium is a critical ‘green metal’ used in the world’s transition to a low carbon future. Our high environmental standards combined with the Company’s low-impact operations remain key in producing our VPURE™ and VPURE+™ products, which are a component in lighter, stronger steel and aluminum alloys, as well as in grid-level energy storage with vanadium redox flow batteries.” He concluded: “Looking to the future, we at Largo will strive to maintain our status as the industry preferred producer and supplier of vanadium, with high standards of transparency in all aspects of our business. We look forward to achieving the goals we have set out for 2020, and we will continue to ensure sustainability remains at the heart of what we do best: producing a majority of the world’s highest-grade vanadium, responsibly.”

 

The report is available for download within the Responsibility section of our website at www.largoresources.com.

 

Below: Largo Resources’ 2019 Sustainability Report

 

GRAPHIC

 

 

About Largo Resources

 

Largo Resources is an industry preferred producer and supplier of vanadium. Largo’s VPURE™ and VPURE+™ products are sourced from one of the world’s highest-grade vanadium deposits at the Maracás Menchen Mine located in Brazil. The Company’s common shares are principally listed on the Toronto Stock Exchange under the symbol “LGO”. For more information on Largo and VPURE™, please visit www.largoresources.com and www.largoVPURE.com.

 

For further information, please contact:

 

Alex Guthrie
Manager, Investor Relations and Communications
aguthrie@largoresources.com
Tel: +1 416-861-9797

 

Neither the Toronto Stock Exchange (nor its regulatory service provider) accepts responsibility for the adequacy or accuracy of this press release.

 

Exhibit 99.34

 

 

PRESS RELEASE

July 22, 2020

 

Largo Resources to Release Second Quarter 2020 Financial Results on August 13, 2020

 

·                  Shareholder conference call with Paulo Misk, President and CEO, Ernest Cleave, CFO and Paul Vollant, Director of Sales and Trading will be conducted at 2:00 p.m. ET on Friday, August 14, 2020.

 

TORONTO — Largo Resources Ltd. (“Largo” or the “Company”) (TSX: LGO) (OTCQX: LGORF) will release its second quarter 2020 financial results on Thursday, August 13, 2020 after the close of market trading. Additionally, the Company will host a conference call to discuss its second quarter 2020 operating and financial results on Friday, August 14 at 2:00 p.m. ET.

 

Details of the conference call are listed below:

 

Date:

 

Friday, August 14, 2020

Time:

 

2:00 p.m. ET

Dial-in Number:

 

Local / International: +1 (416) 764-8688

 

 

North American Toll Free: (888) 390-0546

 

 

Brazil Toll Free: 08007621359

Conference ID:

 

63772474

Replay Number:

 

Local / International: + 1 (416) 764-8677

 

 

North American Toll Free: (888) 390-0541

 

 

Replay Passcode: 772474 #

Website:

 

To view press releases or any additional financial information, please visit the Investor Relations section of the Largo Resources website at: www.largoresources.com/investors

 

About Largo Resources

 

Largo Resources is an industry preferred producer and supplier of vanadium for the global steel and high purity markets. Largo’s VPURE™ and VPURE+™ products are sourced from one of the world’s highest-grade vanadium deposits at the Maracás Menchen Mine located in Brazil. The Company’s common shares are principally listed on the Toronto Stock Exchange under the symbol “LGO”. For more information on Largo and VPURE™, please visit www.largoresources.com and www.largoVPURE.com.

 

For further information, please contact:

 

Alex Guthrie
Manager, Investor Relations and Communications
info@largoresources.com
Tel: +1 416-861-9797

 

Exhibit 99.35

 

FORM 52-109F2

 

CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE

 

I, Paulo Misk, Chief Executive Officer of LARGO RESOURCES LTD., certify the following:

 

1.                                      Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Largo Resources Ltd. (the “issuer”) for the interim period ended June 30, 2020.

 

2.                                      No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

 

3.                                      Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

 

4.                                      Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

 

5.                                      Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings

 

(a)                                 designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

 

(i)                                     material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

 

(ii)                                  information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

 

(b)                                 designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

 

5.1                               Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Internal Control — Integrated Framework (2013 COSO Framework) published by The Committee of Sponsoring Organizations of the Treadway Commission.

 

5.2                               ICFR — material weakness relating to design: N/A

 

5.3                               Limitation on scope of design: N/A

 

 

6.                                      Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on April 1, 2020 and ended on June 30, 2020 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

 

Date: August 13, 2020

 

“Paulo Misk”

 

Paulo Misk

 

Chief Executive Officer

 

 

2

Exhibit 99.36

 

FORM 52-109F2

 

CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE

 

I, Ernest Cleave, Chief Financial Officer of LARGO RESOURCES LTD., certify the following:

 

1.                                      Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Largo Resources Ltd. (the “issuer”) for the interim period ended June 30, 2020.

 

2.                                      No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

 

3.                                      Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

 

4.                                      Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

 

5.                                      Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings

 

(a)                                 designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

 

(i)                                     material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

 

(ii)                                  information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

 

(b)                                 designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

 

5.1                               Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Internal Control — Integrated Framework (2013 COSO Framework) published by The Committee of Sponsoring Organizations of the Treadway Commission.

 

5.2                               ICFR—material weakness relating to design: N/A

 

5.3                               Limitation on scope of design: N/A

 

 

6.                                      Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on April 1, 2020 and ended on June 30, 2020 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

 

Date: August 13, 2020

 

“Ernest Cleave”

 

Ernest Cleave

 

Chief Financial Officer

 

 

2

Exhibit 99.37

 

GRAPHIC

 

PRESS RELEASE

 

 

August 13, 2020

 

Largo Resources Announces Second Quarter 2020 Results Highlighted by
Continued Low-cost Operations; Overall Sales and Trading Performance In-Line
with Expectations

 

All dollar amounts are in U.S. dollars, unless otherwise noted.

 

Q2 2020 Highlights

 

·                  Production of 2,562 tonnes (5.6 million pounds(1)) of V2O5, an increase of 2.0% over Q2 2019

 

·                  Two consecutive months of V2O5 production above nameplate capacity: 1,052 tonnes in May 2020 and 1,030 tonnes in June 2020

 

·                  Global V2O5 recovery rate(2) of 80.8%; Second quarter of strong global recoveries in 2020

 

·                  Solid financial position: Cash at June 30, 2020 totaled $78.2 million

 

·                  Record low cash operating costs excluding royalties(3) of $1.89 per lb of V2O5 , 44% decrease over Q2 2019 (after tax credit benefits of $2.2 million)

 

·                  Revenues of $8.4 million (net of the re-measurement of trade receivables / payables of $2.4 million on vanadium sales from contracts with customers of $10.8 million)

 

·                  Net loss of $7.0 million and a loss per share of $0.01

 

·                  Company maintains its 2020 sales, cost and production guidance

 

Other Significant Highlights

 

·                  2019 Sustainability Report released: Including improved performance metrics and new reporting standards

 

·                  Nameplate capacity increase by 10%: Planned kiln upgrades and cooler maintenance scheduled for Q4 2020 with a capex of $1.3 million

 

·                  2020 drilling program underway following delays caused by COVID-19

 

TORONTO - Largo Resources Ltd. (“Largo” or the “Company”) (TSX: LGO) (OTCQX: LGORF) today announces its second quarter 2020 financial and operating results with revenues of $8.4 million from vanadium pentoxide (“V2O5”) equivalent sales of 1,018 tonnes. Production from the Maracás Menchen Mine in Q2 2020 was 2,562 tonnes (5.6 million lbs(1)) of V2O5 produced at an average global recovery rate(4) of 80.8%.

 

Paulo Misk, President and Chief Executive Officer for Largo, stated: “The Company’s balance sheet and financial position remains solid exiting Q2 2020. Operations performed well during the quarter following our preventative

 

 

maintenance program and the Company’s cash balance at the end of Q2 2020 was $78.2 million. Although profitability was impacted by lower recognized sales during the quarter, the Company’s working capital investment was necessary to fill our sales pipeline and build strategic global V2O5 stockpiles in order to fulfil customer demand going forward. Also, despite some minor delays caused by the COVID-19 pandemic, our sales and trading performance remains in-line with expectations. We continue to maintain the Company’s 2020 sales guidance of 9,500 to 10,000 tonnes of V2O5 as we realize the economic benefits associated with our commercial independence. Largo has demonstrated substantially lower unit costs versus Q2 2019, despite the fact that such costs now include sales and distribution costs (while under the previous off-take agreement, the Company’s sales and marketing commissions were netted off against revenue).”

 

He continued: “On the market front, Chinese V2O5 prices strengthened by approximately 15% to $6.95 per lb during Q2 2020 as a result of increased steel sector demand. We continue to receive inquires for our products from end users and remain very optimistic about expected future demand growth as a result of recently announced stimulus programs, globally. Additionally, despite experiencing a period of low demand within the aerospace industry, we continue to prioritize increasing our high purity vanadium customer portfolio, particularly following the completion of our vanadium trioxide plant next year. Our focus remains on capturing these high value sales when demand returns to normalized levels as well as additional sales opportunities in new jurisdictions as the preferred producer and supplier of high purity vanadium.”

 

He concluded: “I am also very encouraged by the support and dedication shown by our entire team during these challenging times while at the same time achieving operational targets. Since March 2020, our team has supported local seamstress businesses who have produced over 230,000 protective masks which have aided in the fight against the spread of COVID-19 in Maracás. Going forward, we continue to prioritize the health and safety of our workforce and extend our support to our local communities as we proactively manage the circumstances related to the global COVID-19 pandemic.”

 

A summary of the operational and financial performance for Q2 2020 is provided in the tables below. Effective May 1, 2020, the Company’s Canadian and Irish entities have changed their functional currency to the U.S. dollar and the Company has changed its presentation currency from Canadian dollar to the U.S. dollar. Prior period comparative information is restated in U.S. dollars to reflect the change in presentation currency.

 

Financial

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,
2020

 

June 30,
2019

 

June 30,
2020

 

June 30,
2019

 

Revenues

 

$

8,350

 

$

21,963

 

$

50,259

 

$

55,168

 

Operating costs

 

(9,561

)

(24,815

)

(35,809

)

(46,598

)

Direct mine and mill costs

 

(2,180

)

(16,800

)

(19,674

)

(31,367

)

Net income (loss) before tax

 

(5,533

)

(15,132

)

(1,652

)

(14,116

)

Income tax (expense) recovery

 

—

 

102

 

—

 

(732

)

Deferred income expense

 

(1,479

)

(268

)

(1,017

)

(1,869

)

Net income (loss)

 

(7,012

)

(15,298

)

(2,669

)

(16,717

)

Basic earnings (loss) per share

 

(0.01

)

(0.03

)

(0.00

)

(0.03

)

Diluted earnings (loss) per share

 

(0.01

)

(0.03

)

(0.00

)

(0.03

)

 

 

 

 

 

 

 

 

 

 

Cash provided (used) before non-cash working capital items

 

$

1,028

 

$

406

 

$

(294

)

$

11,697

 

Net cash (used in) provided by operating activities

 

(63,649

)

22,341

 

(64,631

)

88,871

 

Net cash provided by (used in) financing activities

 

777

 

(5,116

)

27,517

 

(73,050

)

Net cash (used in) investing activities

 

(5,221

)

(14,195

)

(8,601

)

(20,355

)

Net change in cash

 

(67,079

)

1,868

 

(49,284

)

(5,865

)

 

2

 

 

 

As at

 

 

 

June 30,
2020

 

December 31,
2019

 

Cash

 

$

78,215

 

127,499

 

Working capital(5)

 

80,756

 

78,380

 

 

Operational

 

Maracás Menchen Mine Production

 

Q2 2020

 

Q2 2019

 

 

 

 

 

 

 

Total Ore Mined (tonnes)

 

257,357

 

308,858

 

Ore Grade Mined - Effective Grade(6) (%)

 

1.20

 

1.21

 

 

 

 

 

 

 

Effective Grade of Ore Milled(6) (%)

 

1.29

 

1.49

 

Concentrate Produced (tonnes)

 

99,059

 

102,320

 

Grade of Concentrate (%)

 

3.20

 

3.30

 

Contained V2O5 (tonnes)

 

3,174

 

3,380

 

 

 

 

 

 

 

Crushing Recovery (%)

 

97.7

 

98.0

 

Milling Recovery (%)

 

94.7

 

97.9

 

Kiln Recovery (%)

 

91.7

 

88.8

 

Leaching Recovery (%)

 

99.1

 

95.7

 

Chemical Plant Recovery (%)

 

96.1

 

97.1

 

Global Recovery (%)(2)

 

80.8

 

79.1

 

 

 

 

 

 

 

V2O5 produced (Flake + Powder) (tonnes)

 

2,562

 

2,515

 

V2O5 produced (equivalent pounds)(1)

 

5,648,236

 

5,544,619

 

Cash operating costs(3) per pound

 

$

2.57

 

$

3.59

 

Cash operating costs excluding royalties(3) per pound

 

$

1.89

 

$

3.34

 

Total cash costs(3)

 

$

3.68

 

 

 

Revenues per pound sold (7)

 

$

3.72

 

$

4.02

 

 

Second Quarter 2020 Financial Results

 

During Q2 2020, the Company recognized revenues of $8.4 million ($22.0 million in Q2 2019) from sales of 1,018 tonnes of V2O5 equivalent. The low volume of sales in May and June was expected and is attributable to the Company’s sales now typically being recognized at the time of delivery, which can take a few months from the time of shipment from Brazil. The Company’s total sales of VPURE+™ products in the six months ended June 30, 2020 are 600 tonnes.

 

The Company recorded a net loss of $7.0 million in Q2 2020 following the recognition of a deferred income tax expense of $1.5 million. This compares to net loss of $15.3 million in Q2 2019 and is primarily due to a decrease in

 

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operating and finance costs but was partially offset by a decrease in revenues and interest income, and an increase in the foreign exchange loss during the quarter.

 

The Company’s trade payables balance at June 30, 2020 with its former off-take partner was $2.4 million. The decrease is primarily attributable to the payment made of approximately $57.4 million during Q2 2020 and the balance at June 30, 2020 is attributable to the re-measurement of trade receivables / payables for V2O5 sold in the period to April 30, 2020. The Company anticipates that the final re-measurement of trade receivables / payables resulting from its recently terminated offtake agreement will negatively impact future periods by an aggregate of approximately $0.3 million.

 

Operating costs for Q2 2020 were $9.6 million compared to $24.8 million in Q2 2019 and include direct mine and mill costs of $2.2 million ($16.8 million in Q2 2019), royalties of $1.3 million, product acquisition costs of $2.4 million, distribution costs of $0.3 million, inventory write-down of $1.3 million and depreciation and amortization of $2.0 million. The decrease in direct mine and mill costs is primarily attributable to the decrease in V2O5 equivalent sold in Q2 2020.

 

Cash operating costs excluding royalties(3) in Q2 2020 were $1.89 per lb sold compared to $3.34 in Q2 2019. The measure for Q2 2020 includes the benefit of tax credits of $2.2 million, without which the cash operating costs excluding royalties(3) per lb would be $3.04. The decrease seen in Q2 2020 compared with Q2 2019 is largely due to the decreased sales as noted previously. For Q2 2020, total cash costs(3) were $3.68 (the measure for Q2 2020 includes the benefit of tax credits of $2.2 million, without which the total cash costs(3) would be $4.66). Total cash costs(3) exclude royalties and include the Company’s total professional, consulting and management fees and other general and administrative expenses.

 

Cash (used in) provided by operating activities decreased from cash provided in Q2 2019 of $22.3 million to cash used in Q2 2020 of $63.6 million. This is primarily due to the change in accounts payable of $51.4 million in Q2 2020 when a payment was made to reduce the Company’s trade payables balance with its former off-take partner. A further factor is the change in inventory of $15.9 million in Q2 2020 as a consequence of the increased time for the Company to deliver its products and recognize sales as well as the building of strategic stock levels.

 

Second Quarter 2020 Operational Results

 

Total production from the Maracás Menchen Mine was 2,562 tonnes of V2O5, representing an increase of 2.0% over Q2 2019. Following the completion of the Company’s preventative maintenance program, V2O5 production in April 2020 was 480 tonnes with 1,052 tonnes produced in May 2020 and 1,030 tonnes in June 2020.

 

In Q2 2020, 257,357 tonnes of ore were mined with an effective grade(6) of 1.20% of V2O5. The Company produced 99,059 tonnes of concentrate with an effective grade(6) of 3.20%. The decrease in total ore mined when compared to Q2 2019 is due to operational adjustments to limit the mine site contractor workforce during the COVID-19 pandemic as well as operational restrictions due to the rainy season. The Company used available stocks to feed the crushing plant in order to mitigate the impact on V2O5 production.

 

4

 

The Q2 2020 global recovery(2) of 80.8% was higher than both Q2 2019 (79.1%) and the budget, with strong recovery levels seen in both the kiln and leaching areas of the plant.

 

The Company’s planned upgrades to the kiln and improvements in the cooler have been postponed until Q4 2020 as a result of precautionary measures such as limiting mine site personnel and contractors in light of the COVID-19 pandemic. This work is intended to increase the nameplate capacity to 1,100 tonnes of V2O5 per month and is not expected to have a significant impact on the Company’s Q4 2020 production.

 

2020 Vanadium Sales Progress In-Line with Expectations — 2020 Guidance Maintained

 

The Company completed its first independent shipment of vanadium from Brazil on May 14, 2020 to an end-user in the U.S. Since then, the Company has delivered both standard grade and high purity V2O5 as well as ferrovanadium (“FeV”) to customers in Brazil, North America, Europe and Asia. The Company’s logistics operations have experienced some cancelations and delays related to COVID-19, both inside and outside of Brazil. The Company has, so far, been able to fulfil all of its commercial commitments with on-time deliveries thanks to careful planning and responsiveness. Largo maintains its 2020 sales, cost and production guidance and will continue to monitor the rapidly developing impacts of the COVID-19 pandemic, taking all possible actions to help minimize the impact on the Company and its people. However, these actions could significantly change the guidance and forecasts presented and Largo will, if and when necessary, update its guidance accordingly.

 

The markets in which the Company operates have also seen impacts in various ways during Q2 2020. COVID-19 had a negative impact on the demand for vanadium from the aerospace industry while on the positive side, the Chinese steel sector, which currently accounts for approximately 50% of the total global vanadium demand, saw a sharp recovery. During Q2 2020, the Chinese V2O5 price increased approximately 15% ending the period at an average V2O5 price per lb of $6.95. Additionally, the average price per lb of V2O5 in Europe decreased by 5%, ending the period with an average price of approximately $5.30, compared with approximately $5.58 at March 31, 2020. The average price per lb of V2O5 for Q2 2020 was approximately $6.14, compared with approximately $8.59 for Q2 2019. Largo is now selling products with pricing based on several different V2O5 and FeV benchmarks and the Company’s revenues will be driven by the movements in these prices.

 

Vanadium: The Green Metal — 2019 Sustainability Report

 

The Company announced the release of its 2019 sustainability report on July 20, 2020, highlighted by improved performance metrics and new reporting standards. This report is guided in part by SASB, the Sustainability Accounting Standards Board. The Company’s new approach to sustainability reporting sets a new standard for open and transparent communication and Largo expects to continually improve its disclosures in the years to come. The report is available for download within the Responsibility section of the Company’s website at www.largoresources.com/responsibility-page.

 

2020 Drill Program Underway

 

The Company’s 2020 drill program recommenced in late June 2020 following delays caused by the COVID-19 pandemic. All drilling personnel have followed the prescribed COVID-19 quarantine procedures before beginning work on site and Largo does not anticipate any further disruptions to the overall plan going forward. Additional drill

 

5

 

equipment and crews were mobilised in July and August 2020 to increase the production of total metres drilled in order to maintain the planned drilling timeframes at the various targets.

 

The Company has planned for 22,500 metres of drilling on the Near Mine Targets in 2020, primarily to upgrade and expand known resources to determine initial mining opportunities. Additional drilling (7,500 metres) has been planned in and around the Campbell pit to test for down dip continuations of known mineralisation.  Mineralisation at the Campbell pit remains open at depth based on current drill results and exploration on the South Block will include a soil geochemistry sampling survey and 9,600 metres of drilling on higher priority targets based on geological, geophysical and geochemical data. As of August 11, 2020, the Company had completed 3,725 metres of drilling in 17 holes at the Novo Amparo Norte deposit and will shortly begin drilling at the Gulçari A Norte deposit.

 

TiO2 Pigment Project: Ilmenite and TiO2 Chemical Pilot Plants in Progress to Develop TiO2 Pigment

 

The Company continues its work on advancing basic engineering studies to further evaluate the economics associated with upgrading the non-magnetic tailings using concentrate flotation to produce titanium (“TiO2”) concentrate for the pigment industry. The ilmenite chemical pilot plant was completed in October 2019 and was proven successful with ilmenite product being produced shortly after. The Company constructed an additional chemical pilot plant to further upgrade its ilmenite product to TiO2 pigment in April 2020. Test work to further understand and evaluate the Company’s TiO2 chemical pilot plant product is ongoing.

 

Conference Call

 

Largo Resources’ management will host a conference call on Friday, August 14, 2020, at 2:00 p.m. ET, to discuss both operational and financial results for the second quarter of 2020.

 

Conference Call Details:

 

Date:

Friday, August 14, 2020

Time:

2:00 p.m. ET

 

 

Dial-in Number:

Local / International: +1 (416) 764-8688

 

North American Toll Free: (888) 390-0546

 

Brazil Toll Free:  08007621359

Conference ID:

63772474

 

 

Replay Number:

Local / International: + 1 (416) 764-8677

 

North American Toll Free: (888) 390-0541

 

Replay Passcode: 772474 #

Website:

To view press releases or any addition al financial information, please visit our Investor Relations section of the Largo Resources website at:  www.largoresources.com/investors

 

A playback recording will be available on the Company’s website for a period of 60-days following the conference call.

 

The information provided within this release should be read in conjunction with Largo’s unaudited condensed interim consolidated financial statements for the three and six months ended June 30, 2020 and 2019 and its

 

6

 

management’s discussion and analysis for the three and six months ended June 30, 2020, which are available on our website at www.largoresources.com and on SEDAR.

 

About Largo Resources

 

Largo Resources is an industry preferred producer and supplier of vanadium for the global steel and high purity markets. Largo’s VPURE™ and VPURE+™ products are sourced from one of the world’s highest-grade vanadium deposits at the Maracás Menchen Mine located in Brazil. The Company’s common shares are principally listed on the Toronto Stock Exchange under the symbol “LGO”. For more information on Largo and VPURE™, please visit www.largoresources.com and www.largoVPURE.com.

 

Neither the Toronto Stock Exchange (nor its regulatory service provider) accepts responsibility for the adequacy or accuracy of this release.

 

CONTACT INFORMATION:

 

For more information, please contact:

 

Alex Guthrie
Manager, Investor Relations and Communications
info@largoresources.com
416-861-9797

 

Forward Looking Information

 

This press release contains forward-looking information under Canadian securities legislation, some of which may be considered “financial outlook” for the purposes of application Canadian securities legislation (“forward-looking statements”). Forward-looking information in this press release includes, but is not limited to, statements with respect to the timing and amount of estimated future production and sales; costs of future activities and operations; the extent of capital and operating expenditures; and the extent and overall impact of the COVID-19 pandemic in Brazil and globally. Forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. All information contained in this news release, other than statements of current and historical fact, is forward looking information. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Largo to be materially different from those expressed or implied by such forward-looking statements, including but not limited to those risks described in the annual information form of Largo and in its public documents filed on SEDAR from time to time. Forward-looking statements are based on the opinions and estimates of management as of the date such statements are made. Although management of Largo has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such

 

7

 

statements. Accordingly, readers should not place undue reliance on forward-looking statements. Largo does not undertake to update any forward-looking statements, except in accordance with applicable securities laws. Readers should also review the risks and uncertainties sections of Largo’s annual and interim MD&As which also apply.

 

Trademarks are owned by Largo Resources Ltd.

 

Non-GAAP(8) Measures

 

The Company uses certain non-GAAP financial performance measures in its press release and Management’s Discussion and Analysis for the three and six months ended June 30, 2020, which are described in the following section.

 

Revenues Per Pound

 

The Company’s press release refers to revenues per pound sold, a non-GAAP performance measure that is used to provide investors with information about a key measure used by management to monitor performance of the Company.

 

This measure, along with cash operating costs and total cash costs, is considered to be one of the key indicators of the Company’s ability to generate operating earnings and cash flow from its Maracás Menchen Mine and sales activities. This revenues per pound measure does not have any standardized meaning prescribed by IFRS and differs from measures determined in accordance with IFRS. This measure is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. This measure is not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.

 

The following table provides a reconciliation of this measure per pound sold to revenues as per the Q2 2020 unaudited condensed interim consolidated financial statements.

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,
2020

 

June 30,
2019

 

June 30,
2020

 

June 30,
2019

 

Revenues(i)

 

$

8,350

 

$

21,963

 

$

50,259

 

$

55,168

 

V2O5 equivalent sold (000s lb)

 

2,244

 

5,467

 

9,233

 

10,097

 

Revenues per pound sold ($/lb)

 

$

3.72

 

$

4.02

 

$

5.44

 

$

5.46

 

 

(i)                              As per note 21 in the Company’s Q2 2020 unaudited condensed interim consolidated financial statements.

 

Cash Operating Costs Per Pound

 

The Company’s press release refers to cash operating costs per pound, a non-GAAP performance measure, in order to provide investors with information about a key measure used by management to monitor performance. This information is used to assess how well the Maracás Menchen Mine is performing compared to plan and prior periods, and also to assess its overall effectiveness and efficiency.

 

Cash operating costs includes mine site operating costs such as mining costs, plant and maintenance costs, sustainability costs, mine and plant administration costs, royalties, distribution costs and sales, general and administrative costs (all for the mine properties segment), but excludes depreciation and amortization, share-based payments, foreign exchange gains or losses, commissions, reclamation, capital expenditures and exploration and evaluation costs. Operating costs not attributable to the mine properties segment are also excluded, including product acquisition costs and inventory write-downs. These costs are then divided by the pounds of vanadium sold that was produced by the Maracás Menchen Mine to arrive at the cash operating costs per pound. Prior to 2020, these costs were divided by the pounds of production from the Maracás Menchen Mine, rather than pounds sold. These periods have been recalculated using pounds sold in the following table. This measure differs to the new total cash costs non-GAAP measure the Company will use to measure its overall performance starting in 2020 (see later in this section).

 

These measures, along with revenues, are considered to be one of the key indicators of the Company’s ability to generate operating earnings and cash flow from its Maracás Menchen Mine. These cash operating costs measures do not have any standardized meaning prescribed by IFRS and differ from measures determined in accordance with IFRS. These measures are

 

8

 

intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These measures are not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.

 

In addition, the Company’s press release refers to cash operating costs excluding royalties. This is a non-GAAP performance measure and is calculated as cash operating costs less royalties, as disclosed in the following table.

 

The following table provides a reconciliation of cash operating costs per pound for the Maracás Menchen Mine to operating costs as per the Q2 2020 unaudited condensed interim consolidated financial statements.

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,
2020

 

June 30,
2019

 

June 30,
2020

 

June 30,
2019

 

Operating costs(i)

 

$

9,561

 

$

24,815

 

$

35,809

 

$

46,598

 

Professional, consulting and management fees(ii)

 

435

 

1,195

 

1,270

 

2,147

 

Other general and administrative expenses(2)

 

528

 

290

 

765

 

491

 

Less: product acquisition costs(i)

 

(2,444

)

—

 

(2,444

)

—

 

Less: inventory write-down(iii)

 

(1,176

)

—

 

(1,176

)

—

 

Less: depreciation and amortization expense(1)

 

(2,034

)

(6,688

)

(8,481

)

(12,161

)

Cash operating costs

 

4,870

 

19,612

 

25,743

 

37,075

 

Less: royalties(i)

 

(1,290

)

(1,327

)

(3,597

)

(3,070

)

Cash operating costs excluding royalties

 

3,580

 

18,285

 

22,146

 

34,005

 

Produced V2O5 sold (000s lb)(iv)

 

1,896

 

5,467

 

8,885

 

10,097

 

Cash operating costs per pound ($/lb)(iv)

 

$

2.57

(v)

$

3.59

 

$

2.90

(v)

$

3.67

 

Cash operating costs excluding royalties per pound ($/lb)(iv)

 

$

1.89

(v)

$

3.34

 

$

2.49

(v)

$

3.37

 

 

(i)                 As per note 22 in the Company’s Q2 2020 unaudited condensed interim consolidated financial statements.

 

(ii)             As per the Mine properties segment in note 18 in the Company’s Q2 2020 unaudited condensed interim consolidated financial statements.

 

(iii)         As per note 7 in the Company’s Q2 2020 unaudited condensed interim consolidated financial statements.

 

(iv)           Cash operating costs per pound and cash operating costs excluding royalties per pound for Q2 2019 were previously calculated and presented on a pounds produced basis (V2O5 produced (000s lb) = 5,545; V2O5 sold (000s lb) = 5,467). These measures have been calculated and presented on a pounds sold basis in this MD&A.

 

(v)               The measure for Q2 2020 includes the benefit of tax credits of $2,187, without which the cash operating costs per pound would be $3.72 and $3.14 for the three and six month periods ended June 30, 2020, respectively, and the cash operating costs excluding royalties per pound would be $3.04 and $2.74 for the three and six month periods ended June 30, 2020, respectively.

 

Total Cash Costs

 

The Company’s press release refers to total cash costs, a non-GAAP performance measure, in order to provide investors with information about a key measure used by management to monitor performance. This information is used to assess how well the Company is performing at producing and selling vanadium products compared to plan and prior periods, and also to assess its overall effectiveness and efficiency.

 

Total cash costs are a non-GAAP performance measure that includes all operating costs, sales and distribution costs and the Company’s total professional, consulting and management fees and other general and administrative expenses. Total cash costs exclude royalties, depreciation and amortization, share-based payments, foreign exchange gains or losses, commissions, reclamation costs, exploration and evaluation costs and capital expenditures. These costs are then divided by the total pounds of vanadium sold by the Company to arrive at total cash costs.

 

This measure differs from cash operating costs per pound in that it includes all operating costs, sales and distribution costs, professional, consulting and management fees and other general and administrative expenses, rather than just those from the Mine properties segment, and is calculated on total V2O5 equivalent pounds sold rather than pounds sold that was produced by the Maracás Menchen Mine. The Company believes this will be a more accurate reflection of its all-in unit costs.

 

This total cash costs measure does not have any standardized meaning prescribed by IFRS and differs from measures determined in accordance with IFRS. This measure is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. This measure is not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.

 

9

 

The following table provides a reconciliation of total cash costs to operating costs as per the Q2 2020 unaudited condensed interim consolidated financial statements.

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,
2020

 

June 30,
2020

 

Operating costs(i)

 

$

9,561

 

$

35,809

 

Professional, consulting and management fees(ii)

 

1,240

 

2,932

 

Other general and administrative expenses(ii)

 

787

 

1,659

 

Less: depreciation and amortization expense(i)

 

(2,034

)

(8,481

)

Less: royalties(i)

 

(1,290

)

(3,597

)

 

 

$

8,264

 

$

28,322

 

V2O5 equivalent sold (000s lb)

 

2,244

 

9,233

 

Total cash costs ($/lb)

 

$

3.68

(iii)

$

3.07

(iii)

 

(i)                 As per note 22 in the Company’s Q2 2020 unaudited condensed interim consolidated financial statements.

 

(ii)             As per the condensed interim consolidated statement of income (loss) and comprehensive income (loss).

 

(iii)         The measure for Q2 2020 includes the benefit of tax credits of $2,187, without which the total cash costs would be $4.66 and $3.30 for the three and six month periods ended June 30, 2020, respectively.

 

(1)  Conversion of tonnes to pounds, 1 tonne = 2,204.62 pounds or lbs.

 

(2)  Global recovery is the product of crushing recovery, milling recovery, kiln recovery, leaching recovery and chemical plant recovery.

 

(3)  The cash operating costs per pound sold, cash operating costs excluding royalties per pound sold and total cash costs  reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this press release.

 

(4)  Global recovery is the product of crushing recovery, milling recovery, kiln recovery, leaching recovery and chemical plant recovery.

 

(5)  Defined as current assets less current liabilities per the consolidated statements of financial position.

 

(6)  Effective grade represents the percentage of magnetic material mined multiplied by the percentage of V2O5 in the magnetic concentrate.

 

(7)  Revenues per pound sold is calculated based on the quantity of V2O5 sold during the stated period. This may or may not differ to the quantity sold..

 

(8)  GAAP — Generally Accepted Accounting Principles.

 

10

Exhibit 99.38

 

FORM 62-103F3

ALTERNATIVE MONTHLY REPORT
PURSUANT TO PART 4 OF NATIONAL INSTRUMENT 62-103

 

Item 1— Security and Reporting Issuer

 

1.1                               State the designation of securities to which this report relates and the name and address of the head office of the issuer of the securities.

 

Common shares and warrants of:

 

Largo Resources Ltd. (“Largo”)
55 University Avenue, Suite 1101
Toronto, Ontario M5J 2H7

 

1.2                               State the name of the market in which the transaction or other occurrence that triggered the requirement to file this report took place.

 

Not applicable. Effective August 31, 2020, WFI (as defined below) ceased to manage or exercise control or direction over common shares of Largo (“Common Shares”) and other securities of Largo owned by the Gary and Mary West Foundation (the “Foundation”) and the Gary and Mary West Health Endowment (the “Endowment”). The Common Shares are listed on the TSX.

 

Item 2 — Identity of the Eligible Institutional Investor

 

2.1                               State the name and address of the eligible institutional investor.

 

West Family Investments, Inc. (“WFI”)
1603 Orrington Avenue, Suite 810
Evanston, IL 60201 U.S.A.

 

WFI is an investment manager that furnishes investment advice to and/or manages certain investment funds listed in section 2.3 of this report (the “Funds”). In its role as advisor and/or investment manager, WFI possesses voting and/or investment power over the securities of Largo owned by the Funds which are described in this report.

 

2.2                               State the date of the transaction or other occurrence that triggered the requirement to file this report and briefly describe the transaction or other occurrence.

 

The requirement to file this report was triggered by WFI ceasing to manage or exercise control or direction over Common Shares and other securities of Largo owned by the Foundation and the Endowment on August 31, 2020.

 

2.3                               State the name of any joint actors.

 

West Investment Holdings LLC
Gary and Mary West 2012 Gift Trust
West CRT Heavy LLC

 

 

WFI Co-Investments, LLC
Gary West IRA

Mary West IRA
(collectively, the “Funds”)

 

2.4                               State that the eligible institutional investor is eligible to file reports under Part 4 in respect of the reporting issuer.

 

WFI is eligible to file reports under Part 4 in respect of Largo’s securities.

 

Item 3 — Interest in Securities of the Reporting Issuer

 

3.1                               State the designation and the net increase or decrease in the number or principal amount of securities, and in the eligible institutional investor’s securityholding percentage in the class of securities, since the last report filed by the eligible institutional investor under Part 4 or the early warning requirements.

 

As of August 31, 2020, WFI ceased to manage or exercise control or direction over securities of Largo owned by the Foundation and the Endowment, decreasing the aggregate securities held by the Funds and managed or advised by WFI by an aggregate of 6,142,985 Common Shares and 1,009,660 2021A Warrants (as defined below) constituting a reduction of approximately 1.27% of the total number of Common Shares outstanding (assuming the exercise of all of the warrants to purchase Common Shares owned by the Foundation and the Endowment into Common Shares).

 

3.2                               State the designation and number or principal amount of securities and the eligible institutional investor’s securityholding percentage in the class of securities at the end of the month for which the report is made.

 

As at August 31, 2020, the Funds collectively owned the following securities of Largo:

 

·                  47,658,022 Common Shares

 

·                  3,566,767 warrants to purchase Common Shares at a price of $0.29 per Common Share until January, 28, 2021 (“2021A Warrants”)

 

·                  3,634,712 warrants to purchase Common Shares at a price of $0.29 per Common Share until March 2, 2021 (“2021B Warrants”)

 

·                  200,000 warrants to purchase Common Shares at a price of $0.50 per Common Share until December 31, 2020 (“2020B Warrants”)

 

·                  783,719 warrants to purchase Common Shares at a price of $1.15 per Common Share until December 13, 2022 (“2022 Warrants”)

 

The Common Shares, 2021A Warrants, 2021B Warrants, 2020B Warrants and 2022 Warrants owned by the Funds constitute approximately 9.76% of the total number of Common Shares outstanding, based on (a) there being 563,781,160 issued and outstanding

 

2

 

Common Shares (1) and (b) assuming the exercise of all of the 2021A Warrants, 2021B Warrants, 2020B Warrants and 2022 Warrants owned by the Funds into an aggregate additional 8,185,198 issued and outstanding Common Shares.

 

3.3                               If the transaction involved a securities lending arrangement, state that fact.

 

Not applicable.

 

3.4                               State the designation and number or principal amount of securities and the percentage of outstanding securities of the class of securities to which this report relates and over which

 

(a)                                 the eligible institutional investor, either alone or together with any joint actors, has ownership and control,

 

Not applicable.

 

(b)                                 the eligible institutional investor, either alone or together with any joint actors, has ownership but control is held by persons or companies other than the eligible institutional investor or any joint actor, and

 

Not applicable.

 

(c)                                  the eligible institutional investor, either alone or together with any joint actors, has exclusive or shared control but does not have ownership.

 

WFI, as an investment advisor and/or investment manager with voting and/or investment power, has control over the securities of Largo owned by the Funds described in Section 3.2.

 

3.5                               If the eligible institutional investor or any of its joint actors has an interest in, or right or obligation associated with, a related financial instrument involving a security of the class of securities in respect of which disclosure is required under this item, describe the material terms of the related financial instrument and its impact on the eligible institutional investor’s securityholdings.

 

Not applicable.

 

3.6                               If the eligible institutional investor or any of its joint actors is a party to a securities lending arrangement involving a security of the class of securities in respect of which disclosure is required under this item, describe the material terms of the arrangement including the duration of the arrangement, the number or principal amount of securities involved and any right to recall the securities or identical securities that have been transferred or lent under the arrangement.

 

Not applicable.

 

(1) Based on information provided by Largo.

 

3

 

3.7                               If the eligible institutional investor or any of its joint actors is a party to an agreement, arrangement or understanding that has the effect of altering, directly or indirectly, the eligible institutional investor’s economic exposure to the security of the class of securities to which this report relates, describe the material terms of the agreement, arrangement or understanding.

 

Not applicable

 

Item 4 — Purpose of the Transaction

 

State the purpose or purposes of the eligible institutional investor and any joint actors for the acquisition or disposition of securities of the reporting issuer. Describe any plans or future intentions which the eligible institutional investor and any joint actors may have which relate to or would result in any of the following:

 

(a)                                 the acquisition of additional securities of the reporting issuer, or the disposition of securities of the issuer;

 

(b)                                 a sale or transfer of a material amount of the assets of the reporting issuer or any of its subsidiaries;

 

(c)                                  a change in the board of directors or management of the reporting issuer, including any plans or intentions to change the number or term of directors or to fill any existing vacancy on the board;

 

(d)                                 a material change in the present capitalization or dividend policy of the reporting issuer;

 

(e)                                  a material change in the reporting issuer’s business or corporate structure;

 

(f)                                   a change in the reporting issuer’s charter, bylaws or similar instruments or another action which might impede the acquisition of control of the reporting issuer by any person;

 

(g)                                 a class of securities of the reporting issuer being delisted from, or ceasing to be authorized to be quoted on, a marketplace;

 

(h)                                 the issuer ceasing to be a reporting issuer in any jurisdiction of Canada;

 

(i)                                    a solicitation of proxies from securityholders;

 

(j)                                    an action similar to any of those enumerated above.

 

WFI controls the securities of Largo owned by the Funds described in this report on behalf of the Funds for investment purposes. Depending on market conditions and other factors that WFI may deem material to its investment decisions, WFI may, on behalf of the Funds, in the future acquire additional securities of Largo or derivative securities related to the Common Shares, in the open market or in privately negotiated purchases or otherwise. WFI may also, on behalf of the Funds, depending on then-current circumstances, dispose of all or a portion of the Common Shares,

 

4

 

2021A Warrants, 2021B Warrants, 2020B Warrants and 2022 Warrants or other securities or derivative securities related to the Common Shares, in one or more transactions, in each case to the extent then permitted by applicable laws.

 

Item 5 — Agreements, Arrangements, Commitments or Understandings With Respect to Securities of the Reporting Issuer

 

Describe the material terms of any agreements, arrangements, commitments or understandings between the eligible institutional investor and a joint actor and among those persons and any person with respect to securities of the class of securities to which this report relates, including but not limited to the transfer or the voting of any of the securities, finder’s fees, joint ventures, loan or option arrangements, puts or calls, guarantees of profits, division of profits or loss, or the giving or withholding of proxies. Include such information for any of the securities that are pledged or otherwise subject to a contingency, the occurrence of which would give another person voting power or investment power over such securities except that disclosure of standard default and similar provisions contained in loan agreements need not be included.

 

Not applicable.

 

Item 6 — Change in Material Fact

 

If applicable, describe any change in a material fact set out in a previous report filed by the eligible institutional investor under the early warning requirements or Part 4 in respect of the reporting issuer’s securities.

 

Not applicable.

 

Item 7— Certification Certificate

 

The undersigned eligible institutional investor certifies, to the best of its knowledge, information and belief, that the statements made in this report are true and complete in every respect.

 

DATED this 3rd day of September, 2020.

 

 

WEST FAMILY INVESTMENTS, INC.

 

 

 

Per:

“Randy Rochman”

 

 

Randy Rochman

 

 

Authorized Signatory

 

5

Exhibit 99.39

 

GRAPHIC

 

 

LARGO RESOURCES LTD.

 

UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

 

(Expressed in thousands / 000’s of U.S. dollars)

 

 

TABLE OF CONTENTS

 

Condensed Interim Consolidated Statements of Financial Position

1

 

 

 

Condensed Interim Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)

2

 

 

 

Condensed Interim Consolidated Statements of Changes in Equity

3

 

 

 

Condensed Interim Consolidated Statements of Cash Flows

5

 

 

 

Notes to the Unaudited Condensed Interim Consolidated Financial Statements

6

 

 

 

1)

Nature of operations

6

 

 

 

2)

Statement of compliance

6

 

 

 

3)

Change in functional and presentation currency

6

 

 

 

4)

Basis of preparation, significant accounting policies, and future accounting changes

7

 

 

 

5)

Change in presentation currency

8

 

 

 

6)

Amounts receivable

10

 

 

 

7)

Inventory

10

 

 

 

8)

Vanadium products

10

 

 

 

9)

Mine properties, plant and equipment

11

 

 

 

10)

Leases

12

 

 

 

11)

Accounts payable and accrued liabilities

12

 

 

 

12)

Debt

12

 

 

 

13)

Issued capital

13

 

 

 

14)

Equity reserves

14

 

 

 

15)

Earnings (loss) per share

15

 

 

 

16)

Taxes

16

 

 

 

17)

Related party transactions

16

 

 

 

18)

Segmented disclosure

17

 

 

 

19)

Commitments and contingencies

20

 

 

 

20)

Financial instruments

21

 

 

 

21)

Revenues

23

 

 

 

22)

Expenses

23

 

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

 

 

 

 

As at

 

 

 

Notes

 

September 30,
2020

 

December 31, 
2019

 

January 1, 
2019

 

 

 

 

 

 

 

Restated
(notes 3, 5)

 

Restated
(notes 3, 5)

 

Assets

 

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

 

Cash

 

 

 

$

74,895

 

$

127,499

 

$

151,388

 

Restricted cash

 

 

 

—

 

76

 

15

 

Amounts receivable

 

6

 

13,824

 

6,150

 

45,932

 

Inventory

 

7

 

35,870

 

17,981

 

10,552

 

Vanadium products

 

8

 

—

 

3,258

 

—

 

Prepaid expenses

 

 

 

3,488

 

1,632

 

2,460

 

Total Current Assets

 

 

 

128,077

 

156,596

 

210,347

 

Non-current Assets

 

 

 

 

 

 

 

 

 

Deferred income tax

 

16(b)

 

6,143

 

10,571

 

13,863

 

Mine properties, plant and equipment

 

9

 

137,879

 

190,494

 

181,685

 

Total Non-current Assets

 

 

 

144,022

 

201,065

 

195,548

 

Total Assets

 

 

 

$

272,099

 

$

357,661

 

$

405,895

 

Liabilities

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

11

 

$

9,607

 

$

77,741

 

$

24,570

 

Deferred revenue

 

 

 

8,672

 

—

 

—

 

Current portion of provisions

 

 

 

339

 

475

 

307

 

Debt

 

12

 

24,788

 

—

 

86,100

 

Total Current Liabilities

 

 

 

43,406

 

78,216

 

110,977

 

Non-current Liabilities

 

 

 

 

 

 

 

 

 

Provisions

 

19

 

5,857

 

7,342

 

6,509

 

Total Non-current Liabilities

 

 

 

5,857

 

7,342

 

6,509

 

Total Liabilities

 

 

 

49,263

 

85,558

 

117,486

 

Equity

 

 

 

 

 

 

 

 

 

Issued capital

 

13

 

398,765

 

396,026

 

378,859

 

Equity reserves

 

14

 

21,405

 

21,448

 

26,308

 

Accumulated other comprehensive loss

 

 

 

(118,550

)

(66,501

)

(63,634

)

Deficit

 

 

 

(78,784

)

(78,870

)

(53,124

)

Total Equity

 

 

 

222,836

 

272,103

 

288,409

 

Total Liabilities and Equity

 

 

 

$

272,099

 

$

357,661

 

$

405,895

 

 

Commitments and contingencies

9, 19

 

 

 

 

 

Unaudited Condensed Interim Consolidated Financial Statements For The Three and Nine Months Ended September 30, 2020 and 2019

 

—The accompanying notes form an integral part of the consolidated financial statements—

 

1

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)

 

 

 

 

 

Three Months ended
September 30,

 

Nine Months ended
September 30,

 

 

 

Notes

 

2020

 

2019 

 

2020

 

2019

 

 

 

 

 

 

 

Restated

 

 

 

Restated

 

 

 

 

 

 

 

(notes 3, 5)

 

 

 

(notes 3, 5)

 

Revenues

 

21

 

$

27,474

 

$

24,131

 

$

77,733

 

$

79,299

 

Other gains (losses)

 

8

 

—

 

567

 

1,636

 

567

 

 

 

 

 

27,474

 

24,698

 

79,369

 

79,866

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

Operating costs

 

22

 

(20,977

)

(23,673

)

(56,786

)

(70,271

)

Professional, consulting and management fees

 

 

 

(2,094

)

(3,188

)

(5,026

)

(7,276

)

Foreign exchange gain (loss)

 

 

 

557

 

(3,274

)

(11,636

)

(6,189

)

Other general and administrative expenses

 

 

 

(643

)

(375

)

(2,302

)

(2,308

)

Share-based payments

 

14

 

(409

)

(1,316

)

(1,188

)

(3,018

)

Finance costs

 

22

 

(368

)

(44

)

(970

)

(13,653

)

Interest income

 

 

 

126

 

947

 

1,082

 

4,106

 

Exploration and evaluation costs

 

 

 

(314

)

(627

)

(843

)

(2,225

)

 

 

 

 

(24,122

)

(31,550

)

(77,669

)

(100,834

)

Net income (loss) before tax

 

 

 

$

3,352

 

$

(6,852

)

$

1,700

 

$

(20,968

)

Income tax (expense) recovery

 

16(a)

 

(421

)

724

 

(421

)(8)

 

 

Deferred income tax (expense) recovery

 

16(a)

 

(382

)

179

 

(1,399

)

(1,690

)

Net income (loss)

 

 

 

$

2,549

 

$

(5,949

)

$

(120

)

$

(22,666

)

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

Items that subsequently will be reclassified to operations:

 

 

 

 

 

 

 

 

 

 

 

Unrealized (loss) gain on foreign currency translation

 

 

 

(4,036

)

(15,477

)

(52,049

)

(11,304

)

Comprehensive income (loss)

 

 

 

$

(1,487

)

$

(21,426

)

$

(52,169

)

$

(33,970

)

Basic earnings (loss) per Common Share

 

15

 

$

0.00

 

$

(0.01

)

$

(0.00

)

$

(0.04

)

Diluted earnings (loss) per Common Share

 

15

 

$

0.00

 

$

(0.01

)

$

(0.00

)

$

(0.04

)

Weighted Average Number of Shares Outstanding (in 000’s)

 

 

 

 

 

 

 

 

 

 

 

- Basic

 

 

 

563,781

 

532,884

 

562,554

 

531,284

 

- Diluted

 

 

 

630,797

 

532,884

 

562,554

 

531,284

 

 

—The accompanying notes form an integral part of the consolidated financial statements—

 

2

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

 

 

Shares

 

Issued Capital

 

Equity Reserves

 

Accumulated Other
Comprehensive Loss

 

Deficit

 

Shareholders’ Equity

 

Balance at January 1, 2019 (Restated(1))

 

529,126

 

$

378,859

 

$

26,308

 

$

(63,634

)

$

(53,124

)

$

288,409

 

Grant of share options

 

—

 

—

 

637

 

—

 

—

 

637

 

Grant of restricted share units

 

—

 

—

 

1,510

 

—

 

—

 

1,510

 

Share-based payments

 

—

 

—

 

 871

 

—

 

—

 

871

 

Exercise of warrants

 

3,951

 

1,027

 

(714

)

—

 

—

 

313

 

Exercise of share options

 

3,248

 

2,062

 

(793

)

—

 

—

 

1,269

 

Exercise of restricted share units

 

783

 

1,613

 

(1,613

)

—

 

—

 

—

 

Expiry of warrants

 

—

 

—

 

(68

)

—

 

68

 

—

 

Expiry of share options

 

—

 

—

 

(968

)

—

 

968

 

—

 

Currency translation adjustment

 

—

 

—

 

—

 

 (11,304

)

—

 

(11,304

)

Net loss for the period

 

—

 

—

 

—

 

—

 

 (22,666

)

(22,666

)

Balance at September 30, 2019 (Restated(1))

 

537,108

 

$

383,561

 

$

25,170

 

$

(74,938

)

$

(74,754

)

$

259,039

 

Grant of restricted share units

 

—

 

—

 

357

 

—

 

—

 

357

 

Share-based payments

 

—

 

—

 

179

 

—

 

—

 

179

 

Exercise of warrants

 

17,225

 

12,452

 

(4,057

)

—

 

—

 

8,395

 

Exercise of restricted share units

 

201

 

13

 

(13

)

—

 

—

 

—

 

Expiry of warrants

 

—

 

—

 

(2

)

—

 

2

 

—

 

Expiry of share options

 

—

 

—

 

(186

)

—

 

186

 

—

 

Currency translation adjustment

 

—

 

—

 

—

 

8,437

 

—

 

8,437

 

Net loss for the period

 

—

 

—

 

—

 

—

 

(4,304

)

(4,304

)

Balance at December 31, 2019 (Restated(1))

 

554,534

 

$

396,026

 

$

21,448

 

$

(66,501

)

$

(78,870

)

$

272,103

 

Grant of share options

 

—

 

—

 

592

 

—

 

—

 

592

 

Grant of restricted share units

 

—

 

—

 

 293

 

—

 

—

 

293

 

Share-based payments

 

—

 

—

 

303

 

—

 

—

 

303

 

Exercise of warrants

 

8,240

 

1,648

 

(351

)

—

 

—

 

1,297

 

Exercise of share options

 

805

 

626

 

(209

)

—

 

—

 

417

 

Exercise of restricted share units

 

202

 

465

 

(465

)

—

 

—

 

—

 

Expiry of warrants

 

—

 

—

 

(159

)

—

 

159

 

—

 

Expiry of share options

 

—

 

—

 

(47

)

—

 

47

 

—

 

Currency translation adjustment

 

—

 

—

 

—

 

 (52,049

)

—

 

(52,049

)

Net loss for the period

 

—

 

—

 

—

 

—

 

 (120

)

(120

)

Balance at September 30, 2020

 

563,781

 

$

398,765

 

$

21,405

 

$

(118,550

)

$

(78,784

)

$

222,836

 

 

(1).          Refer to notes 3 and 5.

 

—The accompanying notes form an integral part of the consolidated financial statements—

 

3

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

Three Months ended
September 30,

 

Nine Months ended
September 30,

 

 

 

Notes

 

2020

 

2019

 

2020

 

2019

 

 

 

 

 

 

 

Restated
(notes 3, 5)

 

 

 

Restated
(notes 3, 5)

 

Operating Activities

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) for the period

 

 

 

$

2,549

 

$

(5,949

)

$

(120

)

$

(22,666

)

Adjustment for Non-cash Items

 

 

 

 

 

 

 

 

 

 

 

Other (gains) losses

 

8

 

—

 

(567

)

(1,636

)

(567

)

Depreciation

 

 

 

3,272

 

5,644

 

11,771

 

17,820

 

Share-based payments

 

14

 

409

 

1,316

 

1,188

 

3,018

 

Unrealized foreign exchange (gain)

 

 

 

(2,196

)

(2,457

)

(8,126

)

(61

)

Finance costs

 

22

 

368

 

44

 

970

 

13,653

 

Interest income

 

 

 

(126

)

(947

)

(1,082

)

(4,106

)

Income tax expense (recovery)

 

16(a)

 

421

 

(724

)

421

 

8

 

Deferred income tax expense (recovery)

 

16(a)

 

382

 

(179

)

1,399

 

1,690

 

Income tax paid

 

 

 

(259

)

10

 

(259

)

(901

)

Cash Provided (Used) Before Working Capital Items

 

 

 

4,820

 

(3,809

)

4,526

 

7,888

 

Change in amounts receivable

 

 

 

(4,548

)

210

 

(10,006

)

41,826

 

Change in inventory

 

 

 

(3,794

)

(2,230

)

(17,782

)

(5,871

)

Change in vanadium products

 

 

 

—

 

(3,314

)

5,036

 

(3,314

)

Change in prepaid expenses

 

 

 

(1,556

)

3,059

 

(2,444

)

646

 

Change in accounts payable and accrued liabilities

 

 

 

(1,180

)

12,460

 

(52,251

)

54,072

 

Change in deferred revenue

 

 

 

6,640

 

—

 

8,672

 

—

 

Net Cash Provided by (Used in) Operating Activities

 

 

 

382

 

6,376

 

(64,249

)

95,247

 

Financing Activities

 

 

 

 

 

 

 

 

 

 

 

Receipt of debt

 

12

 

—

 

—

 

24,788

 

—

 

Repayment of debt

 

12

 

—

 

(22,365

)

—

 

(92,812

)

Debt issue costs, interest and other associated fees paid

 

 

 

—

 

(1,241

)

—

 

(7,331

)

Interest received

 

 

 

126

 

843

 

1,065

 

3,986

 

Change in restricted cash

 

 

 

—

 

—

 

76

 

15

 

Issuance of common shares

 

14

 

—

 

1,253

 

1,714

 

1,582

 

Net Cash Provided by (Used in) Financing Activities

 

 

 

126

 

(21,510

)

27,643

 

(94,560

)

Investing Activities

 

 

 

 

 

 

 

 

 

 

 

Mine properties, plant and equipment

 

 

 

(4,435

)

(11,896

)

(13,036

)

(32,251

)

Net Cash (Used in) Investing Activities

 

 

 

(4,435

)

(11,896

)

(13,036

)

(32,251

)

Effect of foreign exchange on cash

 

 

 

607

 

(1,719

)

(2,962

)

(3,050

)

Net Change in Cash

 

 

 

(3,320

)

(28,749

)

(52,604

)

(34,614

)

Cash position — beginning of the period

 

 

 

78,215

 

145,523

 

127,499

 

151,388

 

Cash Position — end of the period

 

 

 

$

74,895

 

$

116,774

 

$

74,895

 

$

116,774

 

 

—The accompanying notes form an integral part of the consolidated financial statements—

 

4

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

1)        Nature of operations

 

Largo Resources Ltd. (the “Company”) is engaged in the acquisition, exploration, development and operation of mining and exploration properties located in Brazil and Canada. Substantially all of the Company’s efforts are devoted to operating the Maracás Menchen Mine and to the sales of vanadium. While the Company’s Maracás Menchen Mine has reached commercial production, future changes in market conditions and feasibility estimates could result in the Company’s mineral resources not being economically recoverable.

 

The Company is a corporation governed by the Business Corporations Act (Ontario) and domiciled in Canada whose shares are listed on the Toronto Stock Exchange (“TSX”). The head office, principal address and records office of the Company are located at 55 University Avenue, Suite 1105, Toronto, Ontario, Canada M5J 2H7.

 

2)        Statement of compliance

 

These unaudited condensed interim consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) in accordance with International Accounting Standard (“IAS”) 34, Interim Financial Reporting.

 

The unaudited condensed interim consolidated financial statements were approved by the Board of Directors of the Company on November 12, 2020.

 

3)        Change in functional and presentation currency

 

Following the election by the Company in 2019, the Company’s off-take agreement with its former off-take partner expired at the end of April 2020. In connection with this and with the Company managing its own sales activities from May 1, 2020 onwards, the Company and a number of its subsidiaries are generating U.S. dollar denominated revenues and incurring U.S. dollar denominated costs from May 1, 2020 onwards. Considering the significance of these revenues and costs to the Company’s activities, the Company has determined that the currency of the primary economic environment in which the below entities operate changed to the U.S. dollar on May 1, 2020.

 

Entity Name

 

Functional Currency
at March 31, 2020

 

Functional Currency
effective May 1, 2020

 

Largo Resources Ltd.

 

Canadian dollar

 

U.S. dollar

 

Largo Commodities Holding Ltd.

 

Euro

 

U.S. dollar

 

Largo Commodities Trading Ltd.

 

Euro

 

U.S. dollar

 

 

The Company and its subsidiaries operate in a mixture of currencies and therefore the determination of functional currency involves certain judgments to determine the primary economic environment in which the Company or its subsidiaries operate. The Company reconsiders the functional currency of its entities if there is a change in events and conditions which determine the primary economic environment.

 

In addition, the Company changed its presentation currency from the Canadian dollar (“C$”) to the U.S. dollar (“$” or “USD”). This change in presentation currency was made in connection with the changes in functional currency noted above and to better reflect the Company’s current business activities.

 

The change in functional currency to the U.S. dollar is accounted for prospectively from May 1, 2020. The exchange rates used to translate assets and liabilities to reflect the change in functional currency on adoption is $1 equals C$1.3874 and $1 equals 0.9194 Euros (“EUR”).

 

Prior period comparative information is restated in U.S. dollars to reflect the change in presentation currency. The financial statements of entities with a functional currency that is not the U.S. dollar have been translated into U.S. dollars in accordance with IAS 21, The Effects of Changes in Foreign Exchange Rates, as follows:

 

·                       Assets and liabilities have been translated into U.S. dollars using period-end exchange rates of:

 

·                       January 1, 2019: $1 equals C$1.3620 and $1 equals 3.8748 Brazilian reals (“BRL”).

 

·                       December 31, 2019: $1 equals C$1.3023, $1 equals 0.8902 EUR and $1 equals 4.0307 BRL.

 

5

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

·                       Condensed interim consolidated statements of income (loss) and other comprehensive income (loss) have been translated using average foreign exchange rates prevailing during the reporting periods which ranged from $1 equals C$1.3222 to C$1.3397 and $1 equals 3.7684 to 3.9684 BRL;

 

·                       Shareholder’s equity balances have been translated using historical average foreign exchange rates for the periods in which the transactions occurred; and

 

·                       Resulting exchange differences have been recorded within the foreign currency translation reserve accounts.

 

4)        Basis of preparation, significant accounting policies, and future accounting changes

 

The basis of presentation, and accounting policies and methods of their application in these unaudited condensed interim consolidated financial statements, including comparatives, are consistent with those used in the Company’s audited annual consolidated financial statements for the year ended December 31, 2019, except as disclosed in notes 3 and 5, and should be read in conjunction with those statements.

 

These unaudited condensed interim consolidated financial statements are presented in thousands of U.S. dollars, unless otherwise noted. References to the symbol “C$” or “CAD” mean the Canadian dollar, references to the symbol “EUR” mean the Euro and references to the symbol “R$” or “BRL” mean the Brazilian real, the official currency of Brazil.

 

a)                  Critical judgements and estimation uncertainties

 

The preparation of unaudited condensed interim consolidated financial statements in conformity with IFRS requires the Company’s management to make judgments, estimates and assumptions about the carrying amount of its assets and liabilities that are not readily apparent from other sources. These estimates and assumptions are disclosed in note 4(d) of the Company’s audited annual consolidated financial statements for the year ended December 31, 2019. There have been no significant changes to the areas of estimation and judgment during the three and nine months ended September 30, 2020.

 

COVID-19

 

The Company is conscious of the rapid expansion of the COVID-19 pandemic and the evolving global implications. To date, there have been no significant disruptions to the Company’s operations, supply chain or on its shipment of products from the Maracás Menchen Mine. However, the Company cautions that the potential future impact of any restrictions on the Company’s operations, supply chain, sales efforts and logistics is currently unknown but could be significant.

 

b)                  Significant accounting policies

 

These unaudited condensed interim consolidated financial statements, including comparatives, have been prepared following the same accounting policies and methods of computation as the audited annual consolidated financial statements for the year ended December 31, 2019, except as disclosed below and in notes 3 and 5.

 

Revenues

 

Revenues include sales of vanadium products. The Company recognizes revenue when it transfers control of a product to the customer. The principal activity from which the Company generates its revenue is the sale of vanadium products to third parties. Delivery of the vanadium product is considered to be the only performance obligation. Revenues are measured based on the consideration specified in the contract with the customer.

 

Under the terms of the Company’s vanadium sales agreement that expired on April 30, 2020, vanadium prices were provisionally set at the time revenue was recognized based upon market commodity prices. Revenue, and a trade receivable, was recognized at the time of shipment, which is when control of the vanadium product passed to the customer and the Company’s performance obligation was satisfied. Revenue was measured using market prices on the date of transfer of control of the vanadium product. Changes in the measurement

 

6

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

of the trade receivable, which was re-measured once the date that final selling prices were determined had been set by the Company’s former off-take partner, were also recognized as a component of revenues in the period in which the final price was determined. Variations occured between the price recorded on the date of revenue recognition and the actual final price under the terms of the contract due to changes in market prices.

 

Deferred revenue

 

Deferred revenue is recognized in the consolidated statements of financial position when a cash prepayment is received from a customer prior to the sale of vanadium. Revenue is subsequently recognized in the consolidated statements of income (loss) and comprehensive income (loss) when control has been transferred to the customer. The Company determines the current portion of deferred revenue based on quantities anticipated to be delivered over the next twelve months.

 

5)        Change in presentation currency

 

The impact of the change in presentation currency (see note 3) on the unaudited condensed interim consolidated financial statements is as follows:

 

Condensed interim consolidated statement of financial position — as at January 1, 2019

 

 

 

 

 

Previously 
reported in 
CAD

 

Restated
USD

 

Assets

 

 

 

 

 

 

 

Total Current Assets

 

 

 

C$

286,491

 

$

210,347

 

Total Non-current Assets

 

 

 

 

266,334

 

195,548

 

Total Assets

 

 

 

 

552,825

 

405,895

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Total Current Liabilities

 

 

 

C$

151,233

 

$

110,977

 

Total Non-current Liabilities

 

 

 

 

8,865

 

6,509

 

Total Liabilities

 

 

 

 

160,098

 

117,486

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

Issued capital

 

 

 

C$

415,259

 

$

378,859

 

Equity reserves

 

 

 

 

25,853

 

26,308

 

Accumulated other comprehensive loss

 

 

 

 

(18,904

)

(63,634

)

Deficit

 

 

 

 

(29,481

)

(53,124

)

Total Equity

 

 

 

 

392,727

 

288,409

 

Total Liabilities and Equity

 

 

 

C$

552,825

 

$

405,895

 

 

7

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

Condensed interim consolidated statement of financial position — as at December 31, 2019

 

 

 

 

 

Previously 
reported in 
CAD

 

Restated
USD

 

Assets

 

 

 

 

 

 

 

 

Total Current Assets

 

 

 

C$

203,992

 

$

156,596

 

Total Non-current Assets

 

 

 

 

262,126

 

201,065

 

Total Assets

 

 

 

 

466,118

 

357,661

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Total Current Liabilities

 

 

 

C$

101,979

 

$

78,216

 

Total Non-current Liabilities

 

 

 

 

9,572

 

7,342

 

Total Liabilities

 

 

 

 

111,551

 

85,558

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

Issued capital

 

 

 

C$

437,937

 

$

396,026

 

Equity reserves

 

 

 

 

19,447

 

21,448

 

Accumulated other comprehensive loss

 

 

 

 

(38,744

)

(66,501

)

Deficit

 

 

 

 

(64,073

)

(78,870

)

Total Equity

 

 

 

 

354,567

 

272,103

 

Total Liabilities and Equity

 

 

 

C$

466,118

 

$

357,661

 

 

Condensed interim consolidated statement of income (loss) and comprehensive income (loss) — three and nine month periods ended September 30, 2019

 

 

 

Previously reported in CAD

 

Restated USD

 

 

 

Three months

 

Nine months

 

Three months

 

Nine months

 

Revenues

 

C$

32,118

 

C$

105,894

 

$

24,131

 

$

79,299

 

Other gains (losses)

 

 

750

 

 

750

 

567

 

567

 

 

 

 

32,868

 

 

106,644

 

24,698

 

79,866

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating costs

 

 

(31,506

)

 

(93,861

)

(23,673

)

(70,271

)

Professional, consulting and management fees

 

 

(4,236

)

 

(9,701

)

(3,188

)

(7,276

)

Foreign exchange loss

 

 

(4,739

)

 

(8,976

)

(3,274

)

(6,189

)

Other general and administrative expenses

 

 

(865

)

 

(3,108

)

(375

)

(2,308

)

Share-based payments

 

 

(1,740

)

 

(4,009

)

(1,316

)

(3,018

)

Finance costs

 

 

(58

)

 

(18,238

)

(44

)

(13,653

)

Interest income

 

 

1,254

 

 

5,490

 

947

 

4,106

 

Exploration and evaluation costs

 

 

(828

)

 

(2,956

)

(627

)

(2,225

)

 

 

 

(42,718

)

 

(135,359

)

(31,550

)

(100,834

)

Net income (loss) before tax

 

C$

(9,850

)

C$

(28,715

)

$

(6,852

)

$

(20,968

)

Income tax recovery (expense)

 

 

1,022

 

 

46

 

724

 

(8

)

Deferred income tax recovery (expense)

 

 

238

 

 

(2,590

)

179

 

(1,690

)

Net income (loss)

 

C$

(8,590

)

C$

(31,259

)

$

(5,949

)

$

(22,666

)

 

8

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Previously reported in CAD

 

Restated USD

 

 

 

Three months

 

Nine months

 

Three months

 

Nine months

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on foreign currency translation

 

(14,035

)

(24,056

)

(15,477

)

(11,304

)

Comprehensive income (loss)

 

C$

(22,625

)

C$

(55,315

)

$

(21,426

)

$

(33,970

)

 

Condensed interim consolidated statement of cash flows — three and nine month periods ended September 30, 2019

 

 

 

Previously reported in CAD

 

Restated USD

 

 

 

Three months

 

Nine months

 

Three months

 

Nine months

 

Net cash provided by operating activities

 

C$

11,662

 

C$

128,837

 

$

6,376

 

$

95,247

 

Net cash (used in) financing activities

 

(28,137

)

(127,432

)

(21,510

)

(94,560

)

Net cash (used in) investing activities

 

(15,743

)

(42,914

)

(11,896

)

(32,251

)

Effect of foreign exchange on cash

 

(3,245

)

(9,864

)

(1,719

)

(3,050

)

Net change in cash

 

(35,463

)

(51,373

)

(28,749

)

(34,614

)

Cash position – beginning of the period

 

190,278

 

206,188

 

145,523

 

151,388

 

Cash position – end of the period

 

C$

154,815

 

C$

154,815

 

$

116,774

 

$

116,774

 

 

6)        Amounts receivable

 

 

 

September 30,
2020

 

December 31,
2019

 

Trade receivables

 

$

8,281

 

$

—

 

Current taxes recoverable – Brazil

 

5,447

 

5,920

 

Current taxes recoverable – Other

 

51

 

41

 

Other receivables

 

45

 

189

 

Total

 

$

13,824

 

$

6,150

 

 

At September 30, 2020, the Company’s trade receivable with its former off-take partner (note 19) was in a liability position of $93 and was classified as trade payables (refer to notes 11 and 20(a)) (December 31, 2019 — trade payables of $67,325).

 

7)        Inventory

 

 

 

September 30,
2020

 

December 31,
2019

 

Finished products

 

$

26,355

 

$

5,637

 

Work-in-process

 

1,305

 

2,018

 

Stockpiles

 

423

 

1,413

 

Warehouse materials

 

7,787

 

8,913

 

Total

 

$

35,870

 

$

17,981

 

 

During the three months ended September 30, 2020, the Company recognized a net realizable value write-down of $2 for warehouse materials (three months ended September 30, 2019 — $nil). At September 30, 2020, the net realizable value write-down was $317 for finished products and $127 for warehouse materials (note 22) (December 31, 2019 — $nil). As inventory is sold, previously recorded net realizable value write-downs are reclassified from inventory write-down to direct mine and mill costs or product acquisition costs as appropriate (note 22).

 

9

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

8)        Vanadium products

 

The Company’s off-take agreement with its former off-take partner expired at the end of April 2020. In connection with this and with the Company managing its own sales activities from May 1, 2020 onwards, the Company’s vanadium products are accounted for as finished products inventory (note 7) effective from May 1, 2020. An assessment of net realizable value was performed on the transfer into inventory at May 1, 2020 that resulted in a write-down of $649.

 

Prior to this, vanadium products were measured at fair value based on Level 2 fair value inputs. During the three and nine months ended September 30, 2020, the Company recognized other gains (losses) of $nil and $1,636, respectively (three and nine months ended September 30, 2019 — $567 and $567), relating to realized and unrealized gains and losses on the purchases and sales of vanadium products.

 

9)        Mine properties, plant and equipment

 

At September 30, 2020 and December 31, 2019, the Company’s economic interest in the Maracás Menchen Mine totalled 99.94%. The remaining 0.06% economic interest is held by Companhia Baiana de Pesquisa Mineral (“CBPM”) owned by the state of Bahia. CBPM retains a 3% net smelter royalty (“NSR”) in the Maracás Menchen Mine. The property is also subject to a royalty of 2% on certain operating costs under the Brazilian Mining Act. Under a separate agreement, Anglo Pacific Plc receives a 2% NSR in the Maracás Menchen Mine.

 

The net book value of the Company’s mine properties, plant and equipment at September 30, 2020 by geographic location is: Brazil - $119,756 (December 31, 2019 — $170,243); Canada — $18,123 (December 31, 2019 — $20,251).

 

 

 

Office and
Computer
Equipment

 

Vehicles

 

Mine
Properties

 

Machinery
and
Equipment

 

Construction
In Progress

 

Total

 

COST

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

 

$

887

 

$

349

 

$

94,067

 

$

169,882

 

$

5,043

 

$

270,228

 

Additions

 

234

 

—

 

8,475

 

6,282

 

26,597

 

41,588

 

Tax credits

 

—

 

—

 

—

 

(2,678

)

—

 

(2,678

)

Disposals

 

(98

)

—

 

—

 

(2,686

)

—

 

(2,784

)

Reclassifications

 

—

 

—

 

—

 

21,319

 

(21,319

)

—

 

Effects of changes in foreign exchange rates

 

(43

)

(13

)

(1,682

)

(6,258

)

(1,225

)

(9,221

)

Balance at December 31, 2019

 

$

980

 

$

336

 

$

100,860

 

$

185,861

 

$

9,096

 

$

297,133

 

Additions

 

117

 

—

 

7,742

 

1,905

 

3,551

 

13,315

 

Reclassifications

 

—

 

—

 

—

 

8,323

 

(8,323

)

—

 

Effects of changes in foreign exchange rates

 

(238

)

(96

)

(23,639

)

(54,941

)

(1,089

)

(80,003

)

Balance at September 30, 2020

 

$

859

 

$

240

 

$

84,963

 

$

141,148

 

$

3,235

 

$

230,445

 

 

10

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Office and
Computer
Equipment

 

Vehicles

 

Mine
Properties

 

Machinery
and
Equipment

 

Construction
In Progress

 

Total

 

ACCUMULATED DEPRECIATION

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

 

$

527

 

$

349

 

$

19,093

 

$

68,574

 

$

—

 

$

88,543

 

Depreciation

 

102

 

—

 

6,400

 

17,119

 

—

 

23,621

 

Disposals

 

(98

)

—

 

—

 

(2,686

)

—

 

(2,784

)

Effects of changes in foreign exchange rates

 

(8

)

(13

)

235

 

(2,955

)

—

 

(2,741

)

Balance at December 31, 2019

 

$

523

 

$

336

 

$

25,728

 

$

80,052

 

$

—

 

$

106,639

 

Depreciation

 

65

 

—

 

4,096

 

12,366

 

—

 

16,527

 

Effects of changes in foreign exchange rates

 

(125

)

(96

)

(6,206

)

(24,173

)

—

 

(30,600

)

Balance at September 30, 2020

 

$

463

 

$

240

 

$

23,618

 

$

68,245

 

$

—

 

$

92,566

 

NET BOOK VALUE

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2019

 

$

457

 

$

—

 

$

75,132

 

$

105,809

 

$

9,096

 

$

190,494

 

At September 30, 2020

 

$

396

 

$

—

 

$

61,345

 

$

72,903

 

$

3,235

 

$

137,879

 

 

10)          Leases

 

At September 30, 2020 and December 31, 2019, the Company did not have any right-of-use assets or lease liabilities.

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 30,
2020

 

September 30,
2019

 

September 30,
2020

 

September 30,
2019

 

Recognized in the condensed interim consolidated statements of income (loss) and comprehensive income (loss):

 

 

 

 

 

 

 

 

 

Expenses relating to short-term leases

 

$

3,364

 

$

3,149

 

$

9,381

 

$

9,973

 

 

 

 

 

 

 

 

 

 

 

Recognized in the condensed interim consolidated statement of cash flows

 

 

 

 

 

 

 

 

 

Total cash outflow for leases

 

$

3,135

 

$

2,901

 

$

8,732

 

$

9,175

 

 

11)          Accounts payable and accrued liabilities

 

 

 

September 30,
2020

 

December 31,
2019

 

Trade payables

 

$

93

 

$

67,325

 

Accounts payable

 

6,647

 

7,720

 

Accrued liabilities

 

1,754

 

2,363

 

Accrued financial costs

 

543

 

—

 

Other taxes

 

570

 

333

 

Total

 

$

9,607

 

$

77,741

 

 

At September 30, 2020, the Company’s trade receivable with its former off-take partner (note 19) was in a liability position of $93 and was classified as trade payables (December 31, 2019 — trade payables of $67,325 (refer to note 20(a))).

 

11

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

12)          Debt

 

 

 

September 30,
2020

 

December 31,
2019

 

Total debt

 

$

24,788

 

$

—

 

 

 

 

 

 

 

 

 

Non-cash

 

 

 

 

 

December 31,
2019

 

Cash flows
Proceeds

 

Foreign
exchange 
movement

 

September 30,
2020

 

Total debt

 

$

—

 

$

24,788

 

$

—

 

$

24,788

 

Total liabilities from financing activities

 

$

—

 

$

24,788

 

$

—

 

$

24,788

 

 

 

 

 

 

 

 

Non-cash

 

 

 

 

 

December 31,
2018

 

Cash flows
Repayment

 

Foreign
exchange
movement

 

December 31,
2019

 

Total debt(1)

 

$

92,812

 

$

(92,812

)

$

—

 

$

—

 

Total liabilities from financing activities

 

$

92,812

 

$

(92,812

)

$

—

 

$

—

 

 

(1)    The gross amount excludes unamortized deferred transaction costs.

 

Credit facilities

 

On March 18, 2020, the Company secured a $13,000 credit facility with a bank in Brazil. This facility was fully drawn down and proceeds of R$65,980 ($13,000) were received on March 20, 2020. This facility is due to be repaid as a lump sum payment on March 12, 2021, together with accrued interest at a rate of 3.35% per annum.

 

On March 24, 2020 the Company secured a $11,788 credit facility with a second bank in Brazil. This facility was fully drawn down and proceeds of R$60,000 ($11,788) were received on March 24, 2020. This facility is due to be repaid as a lump sum payment on March 18, 2021, together with accrued interest at a rate of 6.29% per annum.

 

Senior secured notes

 

On May 22, 2018, the Company completed a private placement of $150,000 aggregate principal amount of senior secured notes due in 2021 (the “Notes”). The Notes were callable in years 2 and 3 and had an interest rate of 9.25% per annum, paid on a semi-annual basis in arrears on December 1 and June 1 each year, beginning on December 1, 2018. The terms of the Notes allowed the Company to redeem all or part of the Notes at varying redemption prices and established certain restrictive covenants.

 

On January 28, 2019 and February 19, 2019, the Company completed the purchase and cancellation of $59,221 and $4,490 in aggregate principal amounts of Notes outstanding. The Notes were purchased at a price equal to 105.625% per principal amount of the Notes redeemed plus accrued and unpaid interest up to January 28, 2019 and February 15, 2019, respectively. On May 3, 2019, the Company made an excess cash flow offer to purchase all of its outstanding Notes at that time of $29,101 at a purchase price of 103% of the principal amount thereof plus accrued and unpaid interest to, but not including, the purchase date. The offer was required to be made in accordance with the terms of the Notes and following this offer, $6,736 of the Notes were repurchased and cancelled.

 

On June 10, 2019, the Company announced that it had elected to redeem the remaining outstanding Notes. The Notes were redeemed on July 8, 2019 at a price equal to 104.625% of the principal amount of the Notes plus accrued and unpaid interest to, but not including, the redemption date. The total amount paid was $23,606, including the principal amount of Notes outstanding of $22,365.  Following this redemption on July 8, 2019, the balance of the Notes outstanding was $nil.

 

12

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

13)          Issued capital

 

a)             Authorized

 

Unlimited common shares without par value.

 

b)             Issued

 

 

 

Nine months ended
September 30, 2020

 

Year ended
December 31, 2019

 

 

 

Number of
Shares

 

Stated
Value

 

Number of
Shares

 

Stated
Value

 

Balance, beginning of the period

 

554,534

 

$

396,026

 

529,126

 

$

378,859

 

Exercise of warrants (note 14)

 

8,240

 

1,648

 

21,176

 

13,479

 

Exercise of share options (note 14)

 

805

 

626

 

3,248

 

2,062

 

Exercise of restricted share units (note 14)

 

202

 

465

 

984

 

1,626

 

Balance, end of the period

 

563,781

 

$

398,765

 

554,534

 

$

396,026

 

 

14)          Equity reserves

 

Under the Company’s incentive share compensation plan, the Company has issued options and restricted share units (“RSUs”) approximating 1.47% of its issued and outstanding capital at September 30, 2020.

 

 

 

RSUs

 

Options

 

Warrants

 

 

 

 

 

Number

 

Value

 

Number

 

Weighted
average
exercise
price

 

Value

 

Number

 

Weighted
average
exercise
price

 

Value

 

Total
value

 

December 31, 2018

 

791

 

$

326

 

6,958

 

C$

0.82

 

$

4,030

 

146,202

 

C$

0.48

 

$

21,952

 

$

26,308

 

Share-based payments

 

—

 

1,050

 

—

 

—

 

—

 

—

 

—

 

—

 

1,050

 

Granted

 

1,017

 

1,878

 

370

 

3.04

 

637

 

—

 

—

 

—

 

2,515

 

Forfeited

 

(16

)

(11

)

—

 

—

 

—

 

—

 

—

 

—

 

(11

)

Exercised

 

(984

)

(1,626

)

(3,248

)

(0.52

)

(793

)

(37,616

)

(0.64

)

(4,771

)

(7,190

)

Expired

 

—

 

—

 

(933

)

(2.28

)

(1,154

)

(484

)

(0.65

)

(70

)

(1,224

)

December 31, 2019

 

808

 

$

1,617

 

3,147

 

C$

0.96

 

$

2,720

 

108,102

 

C$

0.42

 

$

17,111

 

$

21,448

 

Share-based payments

 

—

 

303

 

—

 

—

 

—

 

—

 

—

 

—

 

303

 

Granted

 

1,799

 

293

 

3,828

 

0.67

 

611

 

—

 

—

 

—

 

904

 

Exercised

 

(202

)

(465

)

(805

)

(0.70

)

(209

)

(2,836

)

(0.65

)

(351

)

(1,025

)

Expired

 

—

 

—

 

(200

)

(0.46

)

(47

)

(1,272

)

(0.65

)

(159

)

(206

)

Forfeited

 

(39

)

—

 

(54

)

(0.67

)

(19

)

—

 

—

 

—

 

(19

)

September 30, 2020

 

2,366

 

$

1,748

 

5,916

 

C$

0.83

 

$

3,056

 

103,994

 

C$

0.41

 

$

16,601

 

$

21,405

 

 

During the three and nine months ended September 30, 2020, the Company recognized a share-based payment expense related to the grant and vesting of share options and RSUs of $409 and $1,188 (three and nine months ended September 30, 2019 —  $1,316 and $3,018) for share options and RSUs granted to the Company’s directors, officers, employees and consultants. The total share-based payment expense was charged to operations.

 

During the nine months ended September 30, 2020, 2,707 warrants were exercised resulting in proceeds to the Company of $1,297, with 129 warrants surrendered as part of cashless exercises. 5,533 shares were issued in connection with a warrant exercise in 2019. In addition, 805 share options were exercised resulting in proceeds to the Company of $417.

 

13

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

During the year ended December 31, 2019, 26,709 warrants were exercised resulting in proceeds to the Company of $8,708, with 10,907 warrants surrendered as part of cashless exercises. In addition, 3,248 share options were exercised resulting in proceeds to the Company of $1,269.

 

The Company applies the fair value method of accounting for share-based payment awards. The Company estimated the expected volatility using historical volatilities from the Company’s traded common shares when estimating the fair value of share options granted, as it believes that this methodology best reflects the expected future volatility of its stock.

 

a)             RSUs

 

During the nine months ended September 30, 2020, the Company granted 1,799 RSUs to officers and employees of the Company (year ended December 31, 2019 — 1,017 RSUs). These RSUs vest over time, with one-third vesting during each of the three month periods ending March 31, 2021, March 31, 2022 and March 31, 2023. The value of the vested RSUs includes the Company’s expected forfeiture rate of 0%. Upon vesting, the RSUs provide the holders with common shares of the Company.

 

b)             Share options

 

Range of prices

 

No. outstanding

 

No. exercisable

 

Weighted
average
remaining
life (years)

 

Weighted
average
exercise
price

 

Weighted
average
grant date
share price

 

C$ 0.46 – 1.00

 

5,311

 

2,288

 

3.5

 

C$

0.61

 

C$

0.61

 

2.01 – 2.50

 

285

 

285

 

2.9

 

2.40

 

2.40

 

3.01 – 3.04

 

320

 

320

 

3.3

 

3.04

 

3.04

 

 

 

5,916

 

2,893

 

 

 

 

 

 

 

 

The remaining weighted average contractual life of options outstanding at September 30, 2020 was 3.4 years (December 31, 2019 — 1.9 years).

 

During the nine months ended September 30, 2020, the Company granted 3,828 (year ended December 31, 2019 — 370) share options to its directors, officers, employees and consultants with a weighted average exercise price of C$0.67.  750 of the share options vested immediately and are exercisable for a period of 5 years from the date of grant. The remainder vest over time, with one-third vesting during each of the three month periods ending March 31, 2021, March 31, 2022 and March 31, 2023. The estimated weighted average grant date fair value of the share options was C$0.48 per stock option, as determined using the Black-Scholes valuation model and the following assumptions: risk free interest rate — 0.74%, expected life in years — 5, expected volatility — 93.7%, expected dividends — 0% and expected forfeiture rate — 0%.

 

c)              Warrants and broker warrants

 

No.
outstanding

 

No.
exercisable

 

Grant
Date

 

Expiry
Date

 

Exercise
price

 

Expected
volatility

 

Expected
life (years)

 

Expected
dividend
yield

 

Risk-free
Interest
rate

 

25,502

 

25,502

 

29-Jan-16

 

28-Jan-21

 

C$

0.29

 

129

%

5.00

 

0

%

0.67

%

63,078

 

63,078

 

2-Mar-16

 

2-Mar-21

 

C$

0.29

 

132

%

5.00

 

0

%

0.68

%

400

 

400

 

11-Apr-17

 

31-Dec-20

 

C$

0.50

 

94

%

3.75

 

0

%

0.96

%

3,538

 

3,538

 

1-Dec-17

 

1-Dec-22

 

C$

1.15

 

93

%

5.00

 

0

%

1.63

%

11,476

 

11,476

 

13-Dec-17

 

13-Dec-22

 

C$

1.15

 

93

%

5.00

 

0

%

1.65

%

103,994

 

103,994

 

 

 

 

 

C$

0.41

 

 

 

 

 

 

 

 

 

 

15)          Earnings (loss) per share

 

The total number of shares issuable from options, warrants and RSUs that are excluded from the computation of diluted earnings (loss) per share because their effect would be anti-dilutive was 15,619 and 112,276 for the three

 

14

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

and nine months ended September 30, 2020 (three and nine months ended September 30, 2019 — 144,511 and 144,511).

 

16)          Taxes

 

a)             Tax (expense) recovery

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 30,
2020

 

September 30,
2019

 

September 30,
2020

 

September 30,
2019

 

Income tax (expense) recovery

 

$

(421

)

$

724

 

$

(421

)

$

(8

)

Deferred income tax (expense) recovery

 

(382

)

179

 

(1,399

)

(1,690

)

Total

 

$

(803

)

$

903

 

$

(1,820

)

$

(1,698

)

 

b)                 Deferred income tax balances

 

 

 

September 30,
2020

 

December 31,
2019

 

Brazil

 

 

 

 

 

Recognized deferred tax assets:

 

 

 

 

 

Non-capital losses

 

$

15,276

 

$

21,946

 

Mine properties

 

672

 

828

 

 

 

 

 

 

 

Recognized deferred tax liabilities:

 

 

 

 

 

Transitional tax regime

 

$

(6,897

)

$

(9,221

)

Provisions

 

(2,908

)

(2,982

)

Net deferred income tax asset

 

$

6,143

 

$

10,571

 

 

Deferred tax assets have not been recognized in respect of the following deductible temporary differences:

 

 

 

September 30,
2020

 

December 31,
2019

 

Canada

 

 

 

 

 

Non-capital loss carry-forwards

 

$

62,833

 

$

68,131

 

Mine properties, plant and equipment

 

17,651

 

18,118

 

Share issue costs

 

3,717

 

5,108

 

Ireland

 

 

 

 

 

Non-capital loss carry-forwards

 

$

2,516

 

$

1,906

 

Mine properties, plant and equipment

 

81

 

91

 

 

c)                  Changes in deferred tax assets and liabilities

 

 

 

Nine months ended
September 30, 2020

 

Year ended
December 31, 2019

 

Net deferred income tax asset, beginning of the period

 

$

10,571

 

$

13,863

 

Deferred income tax (expense)

 

(1,399

)

(2,612

)

Effect of foreign exchange

 

(3,029

)

(680

)

Net deferred income tax asset, end of the period

 

$

6,143

 

$

10,571

 

 

17)          Related party transactions

 

In accordance with IAS 24, key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company directly or indirectly, including any directors (executive and non-executive) of the Company. One of the directors, Ms. Koko Yamamoto, is a partner in an

 

15

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

accounting firm that provides services to the Company. During the three and nine months ended September 30, 2020, an amount in accounting fees of $nil and $nil (three and nine months ended September 30, 2019 — $nil and $2) was billed and paid under normal payment terms.

 

During the nine months ended September 30, 2020, 5,533 shares were issued to funds managed by Arias Resource Capital Management LP (the “ARC Funds”) in connection with a warrant exercise in 2019 (refer to note 14).

 

The remuneration of directors and other members of key management personnel during the period was as follows. Refer to note 19 for additional commitments with management.

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 30,
2020

 

September 30,
2019

 

September 30,
2020

 

September 30,
2019

 

Short-term benefits

 

$

321

 

$

1,383

 

$

1,756

 

$

3,452

 

Share-based payments

 

359

 

1,216

 

988

 

2,564

 

Total

 

$

680

 

$

2,599

 

$

2,744

 

$

6,016

 

 

18)          Segmented disclosure

 

The Company has four operating segments: sales & trading, mine properties, corporate and exploration and evaluation properties (“E&E properties”). Corporate includes the corporate team that provides administrative, technical, financial and other support to all of the Company’s business units, as well as being part of the Company’s sales structure.

 

The Company recognized revenues from customers of $27,474 and $77,733 in the three and nine months ended September 30, 2020 (three and nine months ended September 30, 2019 — $24,131 and $79,299). These revenues are related to the Company’s sales & trading and mine properties segments.

 

 

 

Sales &
trading

 

Mine
properties

 

Corporate

 

E&E
properties

 

Inter-segment
transactions

 

Total

 

Three months ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

24,232

 

$

35,965

 

$

33,710

 

$

—

 

$

(66,433

)

$

27,474

 

Other gains (losses)

 

—

 

—

 

—

 

—

 

—

 

—

 

 

 

24,232

 

35,965

 

33,710

 

—

 

(66,433

)

27,474

 

Operating costs

 

(25,267

)

(28,555

)

(32,723

)

—

 

65,568

 

(20,977

)

Professional, consulting and management fees

 

(282

)

(853

)

(959

)

—

 

—

 

(2,094

)

Foreign exchange gain

 

12

 

247

 

298

 

—

 

—

 

557

 

Other general and administrative expenses

 

(58

)

(390

)

(195

)

—

 

—

 

(643

)

Share-based payments

 

—

 

—

 

(409

)

—

 

—

 

(409

)

Finance costs

 

(3

)

(364

)

(1

)

—

 

—

 

(368

)

Interest income

 

—

 

81

 

45

 

—

 

—

 

126

 

Exploration and evaluation costs

 

—

 

(312

)

—

 

(2

)

—

 

(314

)

 

 

(25,598

)

(30,146

)

(33,944

)

(2

)

65,568

 

(24,122

)

Net income (loss) before tax

 

(1,366

)

5,819

 

(234

)

(2

)

(865

)

3,352

 

Income tax expense

 

—

 

(421

)

—

 

—

 

—

 

(421

)

Deferred income tax expense

 

—

 

(382

)

—

 

—

 

—

 

(382

)

Net income (loss)

 

$

(1,366

)

$

5,016

 

$

(234

)

$

(2

)

$

(865

)

$

2,549

 

 

16

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Sales &
trading

 

Mine
properties

 

Corporate

 

E&E
properties

 

Inter-segment
transactions

 

Total

 

At September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

Total non-current assets

 

$

8

 

$

125,898

 

$

18,116

 

$

—

 

$

—

 

$

144,022

 

Total assets

 

$

53,491

 

$

195,465

 

$

94,426

 

$

9

 

$

(71,292

)

$

272,099

 

Total liabilities

 

$

48,953

 

$

39,305

 

$

27,066

 

$

—

 

$

(66,061

)

$

49,263

 

 

 

 

Sales &
trading

 

Mine
properties

 

Corporate

 

E&E
properties

 

Inter-segment
transactions

 

Total

 

Three months ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

—

 

$

24,131

 

$

—

 

$

—

 

$

—

 

$

24,131

 

Other gains (losses)

 

—

 

—

 

567

 

—

 

—

 

567

 

 

 

—

 

24,131

 

567

 

—

 

—

 

24,698

 

Operating costs

 

—

 

(23,673

)

—

 

—

 

—

 

(23,673

)

Professional, consulting and management fees

 

—

 

(1,321

)

(1,867

)

—

 

—

 

(3,188

)

Foreign exchange (loss) gain

 

—

 

(5,168

)

1,894

 

—

 

—

 

(3,274

)

Other general and administrative expenses

 

—

 

(111

)

(264

)

—

 

—

 

(375

)

Share-based payments

 

—

 

—

 

(1,316

)

—

 

—

 

(1,316

)

Finance costs

 

—

 

(31

)

(13

)

—

 

—

 

(44

)

Interest income

 

—

 

423

 

524

 

—

 

—

 

947

 

Exploration and evaluation costs

 

—

 

(499

)

—

 

(128

)

—

 

(627

)

 

 

—

 

(30,380

)

(1,042

)

(128

)

—

 

(31,550

)

Net income (loss) before tax

 

—

 

(6,249

)

(475

)

(128

)

—

 

(6,852

)

Income tax recovery

 

—

 

724

 

—

 

—

 

—

 

724

 

Deferred income tax recovery

 

—

 

179

 

—

 

—

 

—

 

179

 

Net income (loss)

 

$

—

 

$

(5,346

)

$

(475

)

$

(128

)

$

—

 

$

(5,949

)

At December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Total non-current assets

 

$

—

 

$

180,813

 

$

20,252

 

$

—

 

$

—

 

$

201,065

 

Total assets

 

$

—

 

$

239,402

 

$

118,202

 

$

57

 

$

—

 

$

357,661

 

Total liabilities

 

$

—

 

$

84,634

 

$

924

 

$

—

 

$

—

 

$

85,558

 

 

17

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Sales &
trading

 

Mine
properties

 

Corporate

 

E&E
properties

 

Inter-segment 
transactions

 

Total

 

Nine months ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

26,679

 

$

95,990

 

$

46,107

 

$

—

 

$

(91,043

)

$

77,733

 

Other gains (losses)

 

1,636

 

—

 

—

 

—

 

—

 

1,636

 

 

 

28,315

 

95,990

 

46,107

 

—

 

(91,043

)

79,369

 

Operating costs

 

(30,645

)

(67,865

)

(44,936

)

—

 

86,660

 

(56,786

)

Professional, consulting and management fees

 

(798

)

(2,123

)

(2,105

)

—

 

—

 

(5,026

)

Foreign exchange gain (loss)

 

17

 

(17,769

)

6,116

 

—

 

—

 

(11,636

)

Other general and administrative expenses

 

(399

)

(1,155

)

(748

)

—

 

—

 

(2,302

)

Share-based payments

 

—

 

—

 

(1,188

)

—

 

—

 

(1,188

)

Finance costs

 

(10

)

(955

)

(5

)

—

 

—

 

(970

)

Interest income

 

—

 

572

 

510

 

—

 

—

 

1,082

 

Exploration and evaluation costs

 

—

 

(781

)

—

 

(62

)

—

 

(843

)

 

 

(31,835

)

(90,076

)

(42,356

)

(62

)

86,660

 

(77,669

)

Net income (loss) before tax

 

(3,520

)

5,914

 

3,751

 

(62

)

(4,383

)

1,700

 

Income tax expense

 

—

 

(421

)

—

 

—

 

—

 

(421

)

Deferred income tax expense

 

—

 

(1,399

)

—

 

—

 

—

 

(1,399

)

Net income (loss)

 

$

(3,520

)

$

4,094

 

$

3,751

 

$

(62

)

$

(4,383

)

$

(120

)

 

18

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Sales & 
trading

 

Mine
properties

 

Corporate

 

E&E
properties

 

Inter-segment 
transactions

 

Total

 

Nine months ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

—

 

$

79,299

 

$

—

 

$

—

 

$

—

 

$

79,299

 

Other gains (losses)

 

—

 

—

 

567

 

—

 

—

 

567

 

 

 

—

 

79,299

 

567

 

—

 

—

 

79,866

 

Operating costs

 

—

 

(70,271

)

—

 

—

 

—

 

(70,271

)

Professional, consulting and management fees

 

—

 

(3,468

)

(3,808

)

—

 

—

 

(7,276

)

Foreign exchange loss

 

—

 

(4,320

)

(1,869

)

—

 

—

 

(6,189

)

Other general and administrative expenses

 

—

 

(602

)

(1,706

)

—

 

—

 

(2,308

)

Share-based payments

 

—

 

—

 

(3,018

)

—

 

—

 

(3,018

)

Finance costs

 

—

 

(177

)

(13,476

)

—

 

—

 

(13,653

)

Interest income

 

—

 

2,926

 

1,180

 

—

 

—

 

4,106

 

Exploration and evaluation costs

 

—

 

(1,934

)

—

 

(291

)

—

 

(2,225

)

 

 

—

 

(77,846

)

(22,697

)

(291

)

—

 

(100,834

)

Net income (loss) before tax

 

—

 

1,453

 

(22,130

)

(291

)

—

 

(20,968

)

Income tax expense

 

—

 

(8

)

—

 

—

 

—

 

(8

)

Deferred income tax expense

 

—

 

(1,690

)

—

 

—

 

—

 

(1,690

)

Net income (loss)

 

$

—

 

$

(245

)

$

(22,130

)

$

(291

)

$

—

 

$

(22,666

)

 

19)          Commitments and contingencies

 

At September 30, 2020, the Company was party to certain management and consulting contracts. Minimum commitments under the agreements are approximately $2,339 and all payable within one year. These contracts also require that additional payments of up to approximately $3,508 be made upon the occurrence of certain events such as change of control. As the triggering event has not occurred, the contingent payments have not been reflected in these consolidated financial statements.

 

In 2008, Largo agreed to sell 100% of its vanadium production under an off-take agreement which, following the election by the Company, expired at the end of April 2020. The Company has entered into a number of contracts with third party customers to deliver monthly quantities of the Company’s various vanadium products. A significant proportion of the Company’s monthly vanadium production after April 2020 has been committed, with deliveries beginning in June 2020.

 

The Company’s mining and exploration activities are subject to various federal, provincial and international laws and regulations governing the protection of the environment. These laws and regulations are continually changing and generally becoming more restrictive. The Company has made payments to comply with such laws and regulations.

 

The Company indemnifies its directors and officers against any and all claims or losses reasonably incurred in the performance of their service to the Company to the extent permitted by law. The Company has acquired and maintains liability insurance for its directors and officers.

 

The Company is committed to a minimum amount of rental payments under five leases of office space which expire between October 31, 2020 and December 31, 2023. Minimum rental commitments remaining under the leases are approximately $601, including $240 due within one year. In addition, minimum rental commitments remaining under other short-term leases are approximately $13, all due within one year.

 

19

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

At the Company’s Maracás Menchen Mine, the Company has entered into purchase order contracts with remaining amounts due related to goods not received or services not rendered as of September 30, 2020 of $9,911.

 

The Company, through its subsidiaries, is party to legal proceedings in the ordinary course of its operations related to legally binding agreements with various third parties under supply contracts and consulting agreements. At September 30, 2020 two such proceedings were ongoing, each in Brazil. The first relates to a supply agreement for the Maracás Menchen Mine which was filed with the courts in October 2014. The amount claimed totals R$9,900 ($1,755), with a counterclaim filed by Vanádio for R$10,700 ($1,897). A provision of R$1,281 ($227) has been recognized at September 30, 2020 for the probable loss (December 31, 2019 — R$1,324 ($328)). The second proceeding relates to a consulting agreement dispute for which R$3,900 ($691) (December 31, 2019 — R$3,900 ($968)) has been claimed against two of the Company’s subsidiaries. No provision has been recognized for this proceeding. The Company and its subsidiaries are also party to legal proceedings regarding labour matters. A provision was recorded at December 31, 2019 for such proceedings in an amount of R$3,468 ($860). At September 30, 2020, the provision recognized was R$3,320 ($589). The outcome of these proceedings remains dependent on the final judgment, which the Company does not expect to be delivered within the next 12 months. Management does not expect the outcome of any of the remaining proceedings to have a materially adverse effect on the results of the Company’s financial position or results of operations. Should any losses result from the resolution of these claims and disputes, they will be charged to operations in the period that they are determined.

 

20)          Financial instruments

 

Financial assets and financial liabilities at September 30, 2020 and December 31, 2019 were as follows:

 

 

 

September 30,
2020

 

December 31,
2019

 

Cash

 

$

74,895

 

$

127,499

 

Restricted cash

 

—

 

76

 

Amounts receivable

 

8,326

 

189

 

Accounts payable and accrued liabilities

 

9,607

 

77,741

 

Debt

 

24,788

 

—

 

 

Refer to the liquidity risk discussion below regarding liabilities.

 

The Company’s risk exposures and the impact on the Company’s financial instruments are summarized below. There have been no changes in the risks, objectives, policies and procedures from the previous year.

 

a)             Fair value

 

IFRS requires that the Company disclose information about the fair value of its financial assets and liabilities. Fair value estimates are made based on relevant market information and information about the financial instrument.

 

These estimates are subjective in nature and involve uncertainties in significant matters of judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect these estimates.

 

The fair value hierarchy categorizes into three levels the inputs to valuation techniques used to measure fair value.  The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs).

 

·             Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.

 

·             Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly such as those derived from prices.

 

·             Level 3 inputs are unobservable inputs for the asset or liability.

 

20

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

At September 30, 2020 and December 31, 2019, trade receivables are classified as financial assets at fair value through profit or loss and are measured at fair value. The valuation of trade receivables is classified within Level 2 of the fair value hierarchy as it is measured using observable vanadium market transaction data as reported by a recognized provider of global metal prices. The valuation of trade receivables with the Company’s former off-take partner (note 19) at September 30, 2020 and December 31, 2019 resulted in a liability position. Accordingly, this balance has been classified as trade payables (refer to note 11) at September 30, 2020 and December 31, 2019.

 

The carrying amounts for cash, restricted cash, other amounts receivable, accounts payable and accrued liabilities (excluding trade payables) and debt in the condensed interim consolidated statements of financial position approximate fair values because of the limited term of these instruments.

 

There have been no changes in the classification of financial instruments in the fair value hierarchy since December 31, 2019. The Company does not have any financial instruments measured using Level 3 inputs. The Company does not offset financial assets with financial liabilities and there were no transfers between Level 1 and Level 2 input financial instruments.

 

b)             Credit risk

 

The Company’s credit risk is primarily attributable to cash, restricted cash and amounts receivable. The Company minimizes its credit risk with respect to cash and restricted cash by leaving its funds on deposit with the highest rated banks in Canada and Brazil. Financial instruments included in amounts receivable consist primarily of receivables from unrelated companies. Management believes that the credit risk related to these receivables is remote due the credit quality of the customers and the Company’s credit insurance policies. For customers not covered by the Company’s credit insurance policies, the Company requires letters of credit or up-front payment before delivery occurs.

 

c)              Liquidity risk

 

The following table details the Company’s expected remaining contractual cash flow requirements at September 30, 2020 for its financial liabilities with agreed repayment periods.

 

 

 

Less than
6 months

 

6 months
to 1 year

 

1 to 3 years

 

Over 3 years

 

Accounts payable and accrued liabilities (note 11)

 

$

9,607

 

$

—

 

$

—

 

$

—

 

Debt (note 12)

 

24,788

 

—

 

—

 

—

 

 

 

$

34,395

 

$

—

 

$

—

 

$

—

 

 

The Company’s principal sources of liquidity are its cash flow from operating activities and cash of $74,895 (December 31, 2019 — $127,499). In response to the vanadium price decreases throughout 2019, the Company adopted certain measures to manage its liquidity risk including repaying its Notes during the year ended December 31, 2019 and obtaining the credit facilities in 2020 (note 12). Despite these measures, and in conjunction with the current vanadium price environment, a risk exists that the Company will not have sufficient liquidity to meet its obligations as they come due.

 

d)             Market risk

 

Interest rate risk

 

The Company’s exposure to a rise in interest rates is limited to that portion of its total debt that is subject to floating interest rates. At September 30, 2020, the Company’s debt is subject to fixed interest rates and the Company does not have any exposure to floating interest rates.

 

21

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

Foreign currency risk

 

At September 30, 2020, the Company’s outstanding debt is 100% denominated in U.S. dollars (December 31, 2019 — no outstanding debt facilities).

 

The impact of fluctuations in foreign currency on cash balances and debt relates primarily to fluctuations between the U.S. dollar, the Canadian dollar, the Brazilian real and the Euro. At September 30, 2020 the Company’s U.S. dollar functional currency entities had cash denominated in Canadian dollars and Euros and the Company’s Brazilian real functional currency entities had cash and debt denominated in U.S. dollars.

 

A 5% change in the value of the Canadian dollar and the Euro relative to the U.S. dollar would affect the value of these cash balances at September 30, 2020 by approximately $762. A 5% change in the value of the Brazilian real relative to the U.S. dollar would affect the value of Brazilian real cash balances by approximately $323.

 

Price risk

 

The Company’s only financial instrument that was susceptible to price risk is its trade receivables /  payables with its former off-take partner, which could vary with the market price of vanadium for products sold that have not yet had the final selling price determined in accordance with the off-take agreement in force at the time of sale. At September 30, 2020 all amounts had the final selling price determined.

 

21)          Revenues

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 30,
2020

 

September 30,
2019

 

September 30,
2020

 

September 30,
2019

 

Vanadium sales from contracts with customers

 

$

27,734

 

$

39,465

 

$

78,754

 

$

171,947

 

Re-measurement of trade receivables / payables

 

(260

)

(15,334

)

(1,021

)

(92,648

)

Total

 

$

27,474

 

$

24,131

 

$

77,733

 

$

79,299

 

 

22)          Expenses

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 30,
2020

 

September 30,
2019

 

September 30,
2020

 

September 30,
2019

 

Operating costs:

 

 

 

 

 

 

 

 

 

Direct mine and production costs

 

$

11,354

 

$

16,691

 

$

31,028

 

$

48,058

 

Royalties

 

1,552

 

1,381

 

5,149

 

4,451

 

Product acquisition costs

 

3,877

 

—

 

7,180

 

—

 

Distribution costs

 

928

 

—

 

1,240

 

—

 

Inventory write-down

 

2

 

—

 

444

 

—

 

Depreciation and amortization

 

3,264

 

5,601

 

11,745

 

17,762

 

 

 

$

20,977

 

$

23,673

 

$

56,786

 

$

70,271

 

.Finance costs:

 

 

 

 

 

 

 

 

 

Interest expense

 

$

336

 

$

10

 

$

866

 

$

6,790

 

Accretion

 

32

 

34

 

104

 

6,863

 

 

 

$

368

 

$

44

 

$

970

 

$

13,653

 

 

22

Exhibit 99.40

 

GRAPHIC

 

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020

 

 

TABLE OF CONTENTS

 

To Our Shareholders

1

 

 

The Company

1

 

 

Q3 2020 Highlights

1

 

 

Q3 2020 Summary

2

 

 

Selected Quarterly Information

7

 

 

Operations

8

 

 

Financial Instruments

14

 

 

Liquidity And Capital Resources

15

 

 

Outstanding Share Data

16

 

 

Transactions With Related Parties

16

 

 

Commitments And Contingencies

16

 

 

Disclosure Controls And Procedures And Internal Controls Over Financial Reporting

17

 

 

Significant Accounting Judgments, Estimates And Assumptions

18

 

 

Changes In Accounting Policies

18

 

 

Non-GAAP Measures

19

 

 

Risks And Uncertainties

21

 

 

Cautionary Statement Regarding Forward-Looking Information

21

 

 

TO OUR SHAREHOLDERS

 

The following Management’s Discussion and Analysis (“MD&A”) relates to the financial condition and results of operations of Largo Resources Ltd. (“we”, “our”, “us”, “Largo”, or the “Company”) for the quarter ended September 30, 2020 (“Q3 2020”) and should be read in conjunction with (i) the unaudited condensed interim consolidated financial statements and related notes for the same period, (ii) the audited annual consolidated financial statements and related notes for the year ended December 31, 2019 and (iii) the MD&A for the year ended December 31, 2019. References in the below discussion refer to the note disclosures contained in the Q3 2020 unaudited condensed interim consolidated financial statements. References in the below discussion to “Q3 2019” refer to the quarter ended September 30, 2019.

 

The financial statements and related notes of Largo have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) applicable to a going concern. Certain non-GAAP measures are discussed in this MD&A, which are clearly disclosed as such. Additional information, including our press releases, has been filed electronically through the System for Electronic Document Analysis and Retrieval (“SEDAR”) and is available online under our profile at www.sedar.com.

 

This MD&A reports our activities through November 12, 2020, unless otherwise indicated. References to “date of this MD&A” mean November 12, 2020. Except as otherwise set out herein, all amounts expressed herein are in thousands of U.S. dollars, denominated by “$”. The Company’s shares, options, units and warrants are expressed in thousands. Prices are not expressed in thousands. References to the symbol “C$” mean the Canadian dollar and references to the symbol “R$” mean the Real, the official currency of Brazil.

 

Mr. Paul Sarjeant B.Sc. P.Geo., is a Qualified Person as defined under National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”) and has reviewed the technical information in the MD&A. Mr. Sarjeant is Manager, Geology of the Company. Refer to the Operations section of this MD&A for details of the Qualified Persons involved in reviewing the updated reserves and resources at the Company’s Maracás Menchen Mine.

 

THE COMPANY

 

Largo is a Canadian natural resource company organized and existing under the Business Corporations Act (Ontario). Largo is listed on the Toronto Stock Exchange (“TSX”), with a vanadium mine and vanadium and tungsten projects in Brazil and Canada. In Brazil, Largo owns the Maracás Menchen Mine and has secondary projects with the Currais Novos tungsten tailings project and the Campo Alegre de Lourdes iron-vanadium project. In Canada, Largo has a project at the Northern Dancer tungsten-molybdenum property, located in the Yukon Territory. Substantially all of the Company’s efforts are devoted to operating the Maracás Menchen Mine and to the sales of vanadium.

 

Q3 2020 HIGHLIGHTS

 

·                  The Company’s Maracás Menchen Mine produced a record 3,092 tonnes of vanadium pentoxide (“V2O5”) in Q3 2020, with a record global V2O5 recovery rate of 84.2%.

 

·                  The Company recorded net income before tax of $3,352 for Q3 2020 and net income of $2,549 after the recognition of an income tax expense of $421 and a deferred income tax expense of $382.

 

·                  The Company’s cash balance at September 30, 2020 was $74,895, with net cash provided by operating activities of $382 for Q3 2020.

 

·                  Following the election by the Company in 2019, the Company’s off-take agreement with its former off-take partner expired at the end of April 2020. In connection with this and with the Company managing its own sales activities from May 1, 2020 onwards, the Company and a number of its subsidiaries are generating U.S. dollar denominated revenues and incurring U.S. dollar denominated costs from May 1, 2020 onwards. Considering the significance of these revenues and costs to the Company’s activities, the Company has determined that the currency of the primary economic environment in which some of its entities operate changed to the U.S. dollar on May 1, 2020. In addition, the Company changed its presentation currency from the Canadian dollar to the U.S. dollar (refer to notes 3 and 5).

 

Management’s Discussion and Analysis for the Three and Nine Months Ended September 30, 2020

 

1

 

·                  On July 20, 2020, the Company announced the release of its 2019 sustainability report, highlighted by new performance metrics and reporting standards. This report is guided in part by SASB, the Sustainability Accounting Standards Board.

 

·                  The Company is conscious of the rapid expansion of the COVID-19 pandemic and the evolving global implications. To date, there have been no significant disruptions to the Company’s operations, supply chain or on its shipment of products from the Maracás Menchen Mine. However, the Company cautions that the potential future impact of any restrictions on the Company’s operations, supply chain, sales efforts and logistics is currently unknown but could be significant.

 

·                  The Company’s planned upgrades to the kiln and improvements in the cooler have been postponed until Q1 2021 as a result of precautionary measures such as limiting mine site personnel and contractors in light of the COVID-19 pandemic. This work is intended to increase the nameplate capacity to 1,100 tonnes of V2O5 per month.

 

Q3 2020 SUMMARY

 

Financial

 

 

 

Three months ended

 

 

 

 

 

 

 

September 30,
2020

 

September 30,
2019

 

Movement

 

Revenues

 

$

27,474

 

$

24,131

 

$

3,343

 

14

%

Other gains (losses)

 

—

 

567

 

(567

)

(100

)%

 

 

27,474

 

24,698

 

2,776

 

11

%

Operating costs

 

(20,977

)

(23,673

)

2,696

 

(11

)%

Direct mine and production costs

 

(11,354

)

(16,691

)

5,337

 

(32

)%

Professional, consulting and management fees

 

(2,094

)

(3,188

)

1,094

 

(34

)%

Foreign exchange gain (loss)

 

557

 

(3,274

)

3,831

 

(117

)%

Other general and administrative expenses

 

(643

)

(375

)

(268

)

71

%

Share-based payments

 

(409

)

(1,316

)

907

 

(69

)%

Finance costs

 

(368

)

(44

)

(324

)

736

%

Interest income

 

126

 

947

 

(821

)

(87

)%

Exploration and evaluation costs

 

(314

)

(627

)

313

 

(50

)%

 

 

(24,122

)

(31,550

)

7,428

 

(24

)%

Net income (loss) before tax

 

$

3,352

 

$

(6,852

)

$

10,204

 

(149

)%

Income tax (expense) recovery

 

(421

)

724

 

(1,145

)

(158

)%

Deferred income tax (expense) recovery

 

(382

)

179

 

(561

)

(313

)%

Net income (loss)

 

$

2,549

 

$

(5,949

)

$

8,498

 

(143

)%

 

 

 

 

 

 

 

 

 

 

Unrealized loss on foreign currency translation

 

(4,036

)

(15,477

)

11,441

 

(74

)%

Comprehensive income (loss)

 

$

(1,487

)

$

(21,426

)

$

19,939

 

(93

)%

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share

 

$

0.00

 

$

(0.01

)

$

0.01

 

(100

)%

Diluted earnings (loss) per share

 

$

0.00

 

$

(0.01

)

$

0.01

 

(100

)%

 

 

 

 

 

 

 

 

 

 

Cash provided (used) before working capital items

 

$

4,820

 

$

(3,809

)

$

8,629

 

(227

)%

Net cash provided by operating activities

 

382

 

6,376

 

(5,994

)

(94

)%

Net cash provided by (used in) financing activities

 

126

 

(21,510

)

21,636

 

(101

)%

Net cash (used in) investing activities

 

(4,435

)

(11,896

)

7,461

 

(63

)%

Net change in cash

 

$

(3,320

)

$

(28,749

)

$

25,429

 

(88

)%

 

2

 

 

 

Nine months ended

 

 

 

 

 

 

 

September 30,
2020

 

September 30,
2019

 

Movement

 

Revenues

 

$

77,733

 

$

79,299

 

$

(1,566

)

(2

)%

Other gains (losses)

 

1,636

 

567

 

1,069

 

189

%

 

 

79,369

 

79,866

 

(497

)

(1

)%

Operating costs

 

(56,786

)

(70,271

)

13,485

 

(19

)%

Direct mine and production costs

 

(31,028

)

(48,058

)

17,030

 

(35

)%

Professional, consulting and management fees

 

(5,026

)

(7,276

)

2,250

 

(31

)%

Foreign exchange loss

 

(11,636

)

(6,189

)

(5,447

)

88

%

Other general and administrative expenses

 

(2,302

)

(2,308

)

6

 

(0

)%

Share-based payments

 

(1,188

)

(3,018

)

1,830

 

(61

)%

Finance costs

 

(970

)

(13,653

)

12,683

 

(93

)%

Interest income

 

1,082

 

4,106

 

(3,024

)

(74

)%

Exploration and evaluation costs

 

(843

)

(2,225

)

1,382

 

(62

)%

 

 

(77,669

)

(100,834

)

23,165

 

(23

)%

Net income before tax

 

$

1,700

 

$

(20,968

)

$

22,668

 

(108

)%

Income tax (expense)

 

(421

)(8)

(413

)

5,163

%

 

 

Deferred income tax (expense)

 

(1,399

)

(1,690

)

291

 

(17

)%

Net income (loss)

 

$

(120

)

$

(22,666

)

$

22,546

 

(99

)%

 

 

 

 

 

 

 

 

 

 

Unrealized loss on foreign currency translation

 

(52,049

)

(11,304

)

(40,745

)

360

%

Comprehensive income (loss)

 

$

(52,169

)

$

(33,970

)

$

(18,199

)

54

%

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share

 

$

(0.00

)

$

(0.04

)

$

0.04

 

(100

)%

Diluted earnings (loss) per share

 

$

(0.00

)

$

(0.04

)

$

0.04

 

(100

)%

 

 

 

 

 

 

 

 

 

 

Cash provided before working capital items

 

$

4,526

 

$

7,888

 

$

(3,362

)

(43

)%

Net cash (used in) provided by operating activities

 

(64,249

)

95,247

 

(159,496

)

(167

)%

Net cash provided by (used in) financing activities

 

27,643

 

(94,560

)

122,203

 

(129

)%

Net cash (used in) investing activities

 

(13,036

)

(32,251

)

19,215

 

(60

)%

Net change in cash

 

$

(52,604

)

$

(34,614

)

$

(17,990

)

52

%

 

The movements in the discussion below refer to those shown in the previous tables.

 

·                  The Company recorded net income of $2,549 in Q3 2020, compared with a net loss of $5,949 in Q3 2019. This movement was primarily due to a 14% increase in revenues, an 11% decrease in operating costs, a 34% decrease in professional, consulting and management fees, a 69% decrease in share-based payments and a 117% change in foreign exchange gain (loss). This was partially offset by an 87% decrease in interest income and a 736% increase in finance costs. For the nine months ended September 30, 2020, the Company recorded a net loss of $120, compared with a loss of $22,666 for the same prior year period. This movement was primarily attributable to similar factors as noted for Q3 2020, with a decrease in finance costs of 93%.

 

Sales and Trading

 

·                  Q3 2020 marked the Company’s first full quarter of independent sales. The Company delivered both standard grade and high purity V2O5 as well as ferrovanadium (“FeV”) to customers in Brazil, North America, Europe and Asia.

 

·                  As a result of the Company’s new commercial independence and sales flexibility, the Company increased its sales in China to take advantage of higher prices and greater overall demand. The Company is confident in its ability to deliver on its 2020 sales guidance of 9,500 to 10,000 tonnes of V2O5.

 

·                  Delivery times to Asia have increased in Q3 2020 due to logistical constraints related to the COVID-19 pandemic. The Company continues to actively manage this process to provide premium products and service to its customers.

 

3

 

·                  During Q3 2020, the average price per lb of V2O5 in Europe increased by 1%, ending the period with an average price of approximately $5.35, compared with approximately $5.30 at June 30, 2020. The average price per lb of V2O5 for Q3 2020 was approximately $5.33, compared with approximately $7.16 for Q3 2019. The Company is now selling products with pricing based on several different V2O5 and FeV benchmarks. The Company’s revenues will be driven by the movements in these prices.

 

·                  During Q3 2020, the Company recognized revenues of $27,474 (Q3 2019 — $24,131) from sales of 2,320 tonnes of V2O5 equivalent. The Company’s sales in August and September 2020 performed in line with expectations, with sales in July 2020 being lower due to logistical delays. Of the total revenues, $24,232 is related to the Sales & trading segment and $3,242 is related to the Mine properties segment (after the elimination of inter-segment transactions). Refer to note 4(b) for the Company’s accounting policies for revenues and deferred revenue.

 

·                  For the nine months ended September 30, 2020, the Company recognized revenues of $77,733 ($79,299 for the same prior year period). Of the total, $26,679 is related to the Sales & trading segment and $51,054 is related to the Mine properties segment (after the elimination of inter-segment transactions).

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 30,
2020

 

September 30,
2019

 

September 30,
2020

 

September 30,
2019

 

Revenues per pound sold(1),(2)

 

$

5.37

 

$

4.02

 

$

5.42

 

$

4.93

 

 

(1) The revenues per pound reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this MD&A.

 

(2) Revenues per pound sold are calculated based on the quantity of V2O5 sold during the stated period.

 

·                  The Company’s trade payables balance at September 30, 2020 with its former off-take partner was $93 (note 11) (December 31, 2019 — $67,325). The decrease is primarily attributable to payments made during the nine months ended September 30, 2020. The balance at September 30, 2020 is attributable to the re-measurement of trade receivables / payables for V2O5 sold in the period to April 30, 2020 and is the last such re-measurement.

 

·                  In connection with the expiry of the Company’s off-take agreement and with the Company managing its own sales activities from May 1, 2020 onwards, the Company’s vanadium products (note 8) are accounted for as finished products inventory (note 7) effective from May 1, 2020. Prior to this, the Company recognized other gains (losses) of $1,636 for the nine months ended September 30, 2020 (Q3 2019 and nine months ended September 30, 2019 — $567 and $567), relating to realized and unrealized gains and losses on the purchases and sales of vanadium products.

 

Costs

 

·                  Operating costs of $20,977 in Q3 2020 (Q3 2019 — $23,673) include direct mine and production costs of $11,354 (Q3 2019 — $16,691), royalties of $1,552 (Q3 2019 — $1,381), product acquisition costs of $3,877 (Q3 2019 — $nil), distribution costs of $928 (Q3 2019 — $nil), inventory write-down of $2 (Q3 2019 — $nil) and depreciation and amortization of $3,264 (Q3 2019 — $5,601). The decrease in direct mine and production costs is primarily attributable to the decrease in sales, with 2,320 tonnes of V2O5 equivalent sold in Q3 2020 (Q3 2019 — 2,720 tonnes). Of the total, $16,814 is related to the Sales & trading segment and $4,163 is related to the Mine properties segment (after the elimination of inter-segment transactions).

 

·                  For the nine months ended September 30, 2020, operating costs of $56,786 ($70,271 for the same prior year period) include direct mine and production costs of $31,028 ($48,058 in the same prior year period), royalties of $5,149 ($4,451 in the same prior year period), product acquisition costs of $7,180, distribution costs of $1,240, inventory write-down of $444 (all $nil in the same prior year period) and depreciation and amortization of $11,745 ($17,762 in the same prior year period). Of the total, $20,933 is related to the Sales & trading segment and $35,853 is related to the Mine properties segment (after the elimination of inter-segment transactions).

 

4

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 30,
2020

 

September 30,
2019(2)

 

September 30,
2020

 

September 30,
2019(2)

 

Cash operating costs per pound(1)

 

$

3.50

 

$

3.25

 

$

3.09

 

$

3.52

 

 

 

 

 

 

 

 

 

 

 

Cash operating costs excluding royalties per pound(1)

 

$

3.14

 

$

3.02

 

$

2.70

 

$

3.24

 

 

 

 

 

 

 

 

 

 

 

Total cash costs(1)

 

$

3.69

 

 

 

 

$

3.29

 

 

 

 

(1) The cash operating costs per pound, cash operating costs excluding royalties per pound and total cash costs reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this MD&A.

 

(2)    Cash operating costs per pound and cash operating costs excluding royalties per pound for this period were calculated on a pounds produced basis. Effective Q1 2020, they are calculated on a pounds sold by basis. The amounts presented here are restated on a pounds sold basis. Refer to the “Non-GAAP Measures” section of this MD&A.

 

·                  Cash operating costs excluding royalties per pound(1), which are now calculated on pounds sold, were $3.14 per lb in Q3 2020, compared with $3.02 for Q3 2019. The increase seen in Q3 2020 compared with Q3 2019 is largely due to a decrease in produced pounds of V2O5 sold as well as the incurrence of distribution costs in Q3 2020. Total cash costs(2) exclude royalties and include the Company’s total professional, consulting and management fees and other general and administrative expenses and is calculated on total pounds of V2O5 sold. For Q3 2020, total cash costs(2) were $3.69.

 

·                  Professional, consulting and management fees in Q3 2020 decreased from Q3 2019 by 34%. The decrease is primarily attributable to costs incurred in 2019 in connection with the redemption of the Notes and the establishment of the Company’s sales and trading function. Of the total professional, consulting and management fee expense in Q3 2020, $282 related to the Sales & trading segment (Q3 2019 — $nil), $853 related to the Mine properties segment (Q3 2019 — $1,321) and $959 related to Corporate (Q3 2019 — $1,867). For the nine months ended September 30, 2020, total professional, consulting and management fees decreased from the same prior year period by 31%. Of the total, $798 related to the Sales & trading segment ($nil in the same prior year period), $2,123 related to the Mine properties segment ($3,468 in the same prior year period) and $2,105 related to Corporate ($3,808 in the same prior year period).

 

·                  The foreign exchange gain in Q3 2020 increased by 117% or $3,831 from a loss of $3,274 seen in Q3 2019. For the nine months ended September 30, 2020, the foreign exchange loss increased by 88% as compared with the same prior period. This is primarily attributable to a strengthening of the U.S. dollar against the Brazilian real by approximately 9% since June 30, 2020 (40% since December 31, 2019) on U.S. dollar denominated cash and liabilities in Brazil and a strengthening of the Canadian dollar against the U.S. dollar by approximately 2% since June 30, 2020 on Canadian dollar denominated assets (weakening of 3% since December 31, 2019). Of the total foreign exchange gain in Q3 2020, $12 related to the Sales & trading segment (Q3 2019 — $nil), $247 related to the Mine properties segment (Q3 2019 — loss of $5,168) and $298 related to Corporate (Q3 2019 —$1,894). For the nine months ended September 30, 2020, a gain of $17 related to the Sales & trading segment ($nil in the same prior year period), a loss of $17,769 related to the Mine properties segment ($4,320 in the same prior year period) and a gain of $6,116 related to Corporate (loss of $1,869 in the same prior year period).

 

·                  Finance costs in Q3 2020 increased from Q3 2019 by $324 or 736%. The increase is primarily attributable to interest expense on the debt in Q3 2020 following the draw-down of the facilities in Q1 2020. The redemption of Notes was completed by July 8, 2019 (refer to note 12) with minimal finance costs in Q3 2019. Of the total in Q3 2020, $3 related to the Sales & trading segment (Q3 2019 — $nil), $364 related to the Mine properties segment (Q3 2019 — $31) and $1 related to Corporate (Q3 2019 — $13). For the nine months ended September 30, 2020, finance costs decreased from the same prior year period by 93%, with $10 related to the Sales & trading segment ($nil in the same prior year period), $955 related to the Mine properties segment ($177 in the same prior year period) and $5 related to Corporate ($13,476 in the same prior year period).

 

(1)  The cash operating costs per pound, cash operating costs excluding royalties per pound and total cash costs reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this MD&A.

 

5

 

·                  Interest income in Q3 2020 decreased from Q3 2019 by 87%. The decrease is primarily due to lower deposit interest rates and lower average cash balances in Q3 2020 as compared with Q3 2019. Of the total in Q3 2020, $81 related to the Mine properties segment (Q3 2019 — $423) and $45 related to Corporate (Q3 2019 — $524). For the nine months ended September 30, 2020, interest income decreased from the same prior year period by 74%, with $572 related to the Mine properties segment ($2,926 in the same prior year period) and $510 related to Corporate ($1,180 in the same prior year period).

 

·                  Exploration and evaluation costs in Q3 2020 decreased from Q3 2019 by 50%. For the nine months ended September 30, 2020, the decrease from the same prior period was 62%. This is a result of delays to the Company’s 2020 drilling program caused by the COVID-19 pandemic.

 

·                  Comprehensive loss for Q3 2020 decreased from Q3 2019 by 93% after a decrease in the unrealized loss on foreign currency translation of 74%. For the nine months ended September 30, 2020, comprehensive loss increased from the same prior year period by 54% after an increase in the unrealized loss on foreign currency translation of 360%. The unrealized losses on foreign currency translation are primarily due to a weakening of the Brazilian real against the U.S. dollar by approximately 9% and 40% since June 30, 2020 and December 31, 2019, respectively.

 

Cash Flows

 

·                  Cash provided by operating activities decreased from $6,376 in Q3 2019 to $382 in Q3 2020. This is primarily due to the change in accounts receivable of $4,548 in Q3 2020 as the payment terms with the Company’s customers is longer than with its former off-take partner. A further factor is the change in inventory of $3,794 in Q3 2020, which is a consequence of the increased time for the Company to deliver its products and recognize sales. This was offset by the change in deferred revenue of $6,640 in Q3 2020 as cash payments were received for sales not yet recognized. For the nine months ended September 30, 2020, cash used in operating activities was $64,249, compared with cash provided by operating activities of $95,247 in the same prior year period. The movement is due to similar factors as noted for Q3 2020.

 

·                  Cash provided by financing activities in Q3 2020 changed from cash used in Q3 2019 by $21,636. The movement is primarily due to the repayment of debt of $22,365 and debt issue costs, interest and other associated fees paid of $1,241 in Q3 2019. In addition, interest received in Q3 2020 decreased from $843 in Q3 2019 to $126 in Q3 2020 and cash received from the issuance of common shares and warrants decreased from $1,253 in Q3 2019 to $nil in Q3 2020.

 

·                  For the nine months ended September 30, 2020, cash provided by financing activities changed from cash used in the same prior year period by $122,203. The movement is primarily attributable to the receipt of debt of $24,788 ($nil in the same prior year period), repayment of debt of $nil ($92,812 in the same prior year period) and cash received from the issuance of common shares and warrants of $1,714 ($1,582 in the same prior year period).

 

·                  Cash used in investing activities in Q3 2020 decreased from Q3 2019 by $7,461 primarily due to the expansion project being undertaken in 2019. For the nine months ended September 30, 2020, the decrease was $19,215 from the same prior year period.

 

·                  The net change in cash in Q3 2020 was a decrease of $3,320, compared with $28,749 for Q3 2019.  For the nine months ended September 30, 2020, the net change in cash was a decrease of $52,604, compared with $34,614 in the same prior year period.

 

6

 

Operations

 

·                  Production quantities and non-GAAP unit cost measures(1) are summarized in the following table:

 

 

 

Production

 

Production
Pounds

 

Average Quarterly
V2O5 price

 

Cash operating costs
excluding royalties(1)

 

Total cash
costs(1)

 

Period

 

Tonnes

 

Equivalent(2)

 

$/lb

 

$/lb(3)

 

$/lb(3)

 

Q3 2020

 

3,092

 

6,816,685

 

$

5.33

 

$

3.14

 

$

3.69

 

Q2 2020

 

2,562

 

5,648,236

 

$

6.14

 

$

1.89

(6)

$

3.68

(6)

Q1 2020

 

2,831

 

6,241,279

 

$

6.07

 

$

2.79

 

$

3.01

 

Q4 2019(4)

 

3,011

 

6,638,111

 

$

5.37

 

$

2.48

 

 

 

Q3 2019(5)

 

2,952

 

6,508,038

 

$

7.16

 

$

3.02

 

 

 

Q2 2019(5)

 

2,515

 

5,544,619

 

$

8.59

 

$

3.34

 

 

 

Q1 2019(5)

 

2,099

 

4,627,497

 

$

16.34

 

$

3.41

 

 

 

Q4 2018(4)

 

2,595

 

5,720,989

 

$

24.53

 

$

3.48

 

 

 

 

(1)    The cash operating costs excluding royalties per pound and total cash costs reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this MD&A.

 

(2)    Conversion of tonnes to pounds, 1 tonne = 2,204.62 pounds or lbs.

 

(3)    For periods prior to Q2 2020, calculated from C$ using average C$/$ foreign exchange rates of 1.32, 1.32, 1.32, 1.34, 1.33 and 1.32 for Q1 2020, Q4 2019, Q3 2019, Q2 2019, Q1 2019 and Q4 2018, respectively.

 

(4)    Cash operating costs excluding royalties per pound for these periods were calculated on a pounds produced basis. Effective Q1 2020, it is calculated on a pounds sold basis.

 

(5)    Q3 2019, Q2 2019 and Q1 2019 have been calculated and presented on a pounds sold basis. Refer to the “Non-GAAP Measures” section of this MD&A.

 

(6)    The measure for Q2 2020 includes the benefit of tax credits of $2,187, without which the cash operating costs excluding royalties per pound would be $3.04 and total cash costs would be $4.66.

 

·                  Q3 2020 production of 3,092 tonnes of V2O5 was a new quarterly production record, being 5% higher than Q3 2019 and 3% higher than the previous record of 3,011 tonnes in Q4 2019.  V2O5 production in July 2020 was 1,055 tonnes, with 1,100 tonnes produced in August 2020 and 937 tonnes produced in September 2020. Operational stability and an increase in the global recovery drove the Q3 2020 production performance.

 

·                  Subsequent to Q3 2020, production in October 2020 was 1,119 tonnes of V2O5.

 

·                  The global recovery record of 84.2% achieved in Q3 2020 was 8% higher than the 78.1% achieved in Q3 2019 and 4% higher than the 80.8% achieved in Q2 2020. This is primarily due to the completion of continuous improvement projects in the plant that focussed on recovery levels. This was highlighted by the performance of the kiln and leaching areas in Q3 2020, with record quarterly recovery levels of 92.5% and 99.7%, respectively, being achieved. The global recovery in July 2020 was 86.0%, with 84.0% achieved in August and 82.1% achieved in September.

 

·                  The planned upgrades to the kiln and improvements in the cooler to increase nameplate capacity to 1,100 tonnes of V2O5 per month are now scheduled for Q1 2021 as a result of precautionary measures taken by the Company in light of the COVID-19 pandemic.

 

SELECTED QUARTERLY INFORMATION

 

Summary financial information for the eight quarters ended September 30, 2020, prepared in accordance with IFRS (in U.S. dollars):

 

Period

 

Revenue

 

Net
Income (Loss)

 

Basic Earnings
(Loss) per Share

 

Total Assets

 

Non-current
Liabilities

 

Q3 2020

 

$

27,474

 

$

2,549

 

$

0.00

 

$

272,099

 

$

5,857

 

Q2 2020

 

8,350

 

(7,012

)

(0.01

)

268,874

 

5,893

 

Q1 2020

 

41,909

 

4,343

 

0.01

 

325,336

 

6,163

 

Q4 2019

 

25,808

 

(4,304

)

(0.01

)

357,661

 

7,342

 

Q3 2019

 

24,131

 

(5,949

)

(0.01

)

338,467

 

6,961

 

Q2 2019

 

21,963

 

(15,298

)

(0.03

)

377,678

 

7,368

 

Q1 2019

 

33,205

 

(1,419

)

(0.00

)

359,164

 

6,706

 

Q4 2018

 

134,508

 

81,792

 

0.16

 

405,895

 

6,509

 

 

The Company’s asset base has fluctuated over the last eight quarters ended September 30, 2020, with the high in Q4 2018 primarily attributable to proceeds from the senior secured notes and amounts receivable.

 

7

 

During Q3 2020, the Company recognized revenues of $27,474, which was offset by operating costs of $20,977, finance costs of $368 and a total tax expense of $803.

 

During Q2 2020, the Company recognized revenues of $8,350, which was offset by operating costs of $9,561, finance costs of $476 and a total tax expense of $1,479.

 

During Q1 2020, the Company recognized revenues of $41,909, which was offset by operating costs of $26,248, finance costs of $126 and a total tax recovery of $462.

 

During Q4 2019, the Company recognized revenues of $25,808, which was offset by operating costs of $22,679, finance costs of $39 and a total tax expense of $1,778.

 

During Q3 2019, the Company recognized revenues of $24,131, which was offset by operating costs of $23,673, finance costs of $44 and a total tax recovery of $903.

 

During Q2 2019, the Company recognized revenues of $21,963, which was offset by operating costs of $24,815, finance costs of $8,133 and a total tax expense of $166.

 

During Q1 2019, the Company recognized revenues of $33,205, which was offset by operating costs of $21,783, finance costs of $5,476 and a total tax expense of $2,435.

 

During Q4 2018, the Company recognized revenues of $134,508, which was offset by operating costs of $28,514, finance costs of $6,293 and a total tax expense of $8,859.

 

OPERATIONS

 

Maracás Menchen Mine

 

Recent Developments

 

Expenditures of $13,315 were capitalized to mine properties, plant and equipment during the nine months ended September 30, 2020 (year ended December 31, 2019 — $41,588), including $7,033 of capitalized waste stripping and push back costs (year ended December 31, 2019 — $7,484). Total sales of V2O5 equivalent during Q3 2020 were 2,320 tonnes.

 

The following table is a summary of production statistics at the Maracás Menchen Mine.

 

 

 

Q3 2020

 

Q3 2019

 

YTD 2020

 

YTD 2019

 

Total Ore Mined (tonnes)

 

287,969

 

267,257

 

749,292

 

826,224

 

Ore Grade Mined - Effective Grade(1) (%)

 

1.28

 

1.52

 

1.34

 

1.34

 

 

 

 

 

 

 

 

 

 

 

Effective Grade of Ore Milled (%)

 

1.26

 

1.44

 

1.36

 

1.48

 

Concentrate Produced (tonnes)

 

104,921

 

92,629

 

304,053

 

281,622

 

Grade of Concentrate (%)

 

3.32

 

3.26

 

3.30

 

3.29

 

Contained V2O5 (tonnes)

 

3,487

 

3,016

 

10,025

 

9,270

 

 

 

 

 

 

 

 

 

 

 

Crushing Recovery (%)

 

98.1

 

96.5

 

98.0

 

97.1

 

Milling Recovery (%)

 

96.5

 

97.0

 

96.5

 

97.2

 

Kiln Recovery (%)

 

92.5

 

88.8

 

90.9

 

88.9

 

Leaching Recovery (%)

 

99.7

 

97.2

 

98.6

 

96.8

 

Chemical Plant Recovery (%)

 

96.4

 

96.7

 

96.4

 

97.1

 

Global Recovery (%)(2)

 

84.2

 

78.1

 

81.8

 

79.0

 

 

 

 

 

 

 

 

 

 

 

V2O5 Produced (Flake + Powder) (tonnes)

 

3,092

 

2,952

 

8,485

 

7,566

 

 

(1)         Effective grade represents the percentage of magnetic material mined multiplied by the percentage of V2O5 in the magnetic concentrate.

 

(2)         Global recovery is the product of crushing recovery, milling recovery, kiln recovery, leaching recovery and chemical plant recovery.

 

8

 

The production of 3,092 tonnes of V2O5 in Q3 2020 was 5% higher than the 2,952 tonnes of V2O5 produced in Q3 2019. Production in September 2020 was impacted by an unplanned shutdown at the end of the month. During this time, the intermediate stocks of V2O5 increased and will be converted into V2O5 flake in Q4 2020.

 

The Q3 2020 global recovery of 84.2% was higher than both Q3 2019 and the budget, with strong recovery levels seen in both the kiln and leaching areas of the plant.

 

In Q3 2020, 287,969 tonnes of ore were mined with an effective grade of 1.28% of V2O5. The ore mined in Q3 2020 was 8% higher than in Q3 2019 and 12% higher than in Q2 2020, which was impacted by the COVID-19 restrictions put in place as well as operational restrictions due to the rainy season. The Company produced 104,921 tonnes of concentrate with an effective grade of 3.32%. The operational performance in Q3 2020 has remained in-line with the Company’s plans despite the COVID-19 restrictions put in place.

 

The Company uses production drilling prior to blasting to better define the ore and waste material being mined. This dilution control procedure has enabled the Company to avoid mining waste rock inside the ore block, resulting in less ore being mined, but with a higher grade than expected. The V2O5 content of the mined ore and the mine sequencing is consistent with that anticipated in the Technical Report (refer to the “Reserves and Resources” section). The Company’s crushing and milling costs have benefited from the implementation of this procedure as a result of the lower throughput of material in these sections of the plant.

 

2020 Guidance

 

The Company’s progress against its sales strategy for 2020 is in line with the Company’s expectations. The Company has committed the majority of its production for sales between October and December 2020. The balance of the Company’s production will be targeted towards spot sales.

 

The Company has committed sales of its VPURE+TM and VPURETM products, as well as FeV produced from VPURETM. The Company is confident that its nascent but growing sales and trading division will add significant long-term value to the Company.

 

The Company’s Maracás Menchen Mine continued operations during the nine months ended September 30, 2020. The Company continues to monitor the evolving COVID-19 pandemic and has taken preventative measures at its mine site and corporate offices to mitigate potential risks. Although there have been some challenges with logistics, there continues to be no significant impact on the Company’s production or on the shipment of products out of Maracás. To date, there continues to be no significant disruption to the Company’s supply chain for its operations and the level of critical consumables continues to be at normal levels. In addition, the restrictions imposed by the government in Brazil have not significantly impacted operations. The Company continues to follow the recommendations provided by health authorities and all corporate office personnel have been instructed to work from home where possible. The Company continues to staff critical functions at the Maracás Menchen Mine and has encouraged those in non-essential roles to work from home.

 

Notwithstanding the delay in the increase in nameplate production capacity as a result of COVID-19 precautions, the Company is on track to meet the lower end of its 2020 production guidance.

 

The Company’s 2020 guidance continues to be presented on a “business as usual” basis. The Company continues to monitor measures being imposed by governments globally to reduce the spread of COVID-19 and the impact that this may have on the Company’s operations, sales and guidance for 2020. Although these restrictions have not, to date, had a material impact on the Company’s operations and sales, the potential future impact of COVID-19 both in Brazil and globally could have a significant impact on the Company’s operations, sales efforts and logistics. The Company is continuing to monitor the rapidly developing impacts of the COVID-19 pandemic and will take all possible actions to help minimize the impact on the Company and its people. However, these actions may significantly change the guidance and forecasts presented and will, if and when necessary, update its guidance accordingly.

 

The Company is evaluating the timing for the construction of the FeV conversion plant, including the deferral of planned 2020 capital expenditures in light of these uncertainties. This deferral will not impact the Company’s commercial strategy in 2020. The Company has decided to proceed with its previously announced vanadium trioxide (“V2O3”) project, with 2020 capital expenditures estimated to be in the range of $8,000 to $10,000. Refer to the Company’s Annual Information Form for the year ended December 31, 2019 for the full discussion of the Company’s Risks and Uncertainties, including those relating to the COVID-19 pandemic.

 

9

 

The Company has revised its 2020 guidance for cash operating costs excluding royalties(1) and total cash costs(1).  The revised guidance is presented below.

 

 

 

 

 

2020 Guidance

 

Annual V2O5 production

 

tonnes

 

11,750 – 12,250

 

Annual V2O5 sales

 

tonnes

 

9,500 – 10,000

 

 

 

 

 

 

 

Cash operating costs excluding royalties(1),(2)

 

$/lb

 

2.60 – 2.80

 

Total cash costs(1),(2)

 

$/lb

 

3.20 – 3.40

 

 

 

 

 

 

 

V2O3 processing plant capital expenditures

 

$

 

8,000 – 10,000

 

 

 

 

 

 

 

Sustaining capital expenditures (excluding capitalized stripping costs)

 

$

 

9,000 – 11,000

 

 

(1)         The cash operating costs excluding royalties and total cash costs reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this MD&A. The estimated average annual R$/$ exchange rate used is approximately 4.50.

 

(2)         These measures exclude royalties. Every $1/lb in the V2O5 price realized by the Company in revenues adds approximately $0.05/lb in royalties.

 

Reserves and Resources

 

On October 16, 2017, the Company disclosed mineral reserve and mineral resource estimates with an effective date of May 2, 2017 in a report titled Maracás Menchen Project, Bahia, Brazil An Updated Mine Plan, Mineral Reserve and Preliminary Economic Assessment of the Inferred Resources (the “Technical Report”), prepared by GE21 Consultoria Mineral Ltda (“GE21”).

 

The Mineral Resources for the Campbell deposit are estimated from diamond drill core information stored in a secured central database and were evaluated using a geostatistical block modelling approach. A three-dimensional block model was generated to enable grade estimation. The selected block size was based on the geometry of the domain interpretation and the data configuration. The block size of 5 m E by 5 m N by 5 m RL was selected. The “percent” block modelling technique was used to represent the volume of the interpreted wireframe models. Sufficient variables were included in the block model construction to enable grade estimation and reporting.

 

Resource estimation for the Campbell deposit was undertaken using ordinary kriging (“OK”) as the principal estimation methodology for V2O5. The OK estimates were completed using Gemcom mining software. In 2016, Largo updated mineral resource estimate for the Campbell deposit as a result of depletion of mined resources. This Measured and Indicated resource was used to update the reserve and used for the new mine plan presented in the Technical Report prepared by GE21.

 

The new block model incorporates percent magnetics (percent of magnetic minerals in the mineralized rock) and magnetite concentrate grade for V2O5 and silicon dioxide (“SiO2”). No new drilling was available for the estimate; however, it was adjusted for mining completed to date. The updated Mineral Resources for the Campbell deposit are presented below:

 

Campbell Mineral Resources — Maracás Menchen Mine

Effective date: May 2, 2017

 

Category

 

Tonnes
(million)

 

V2O5 head grade
(%)

 

V2O5 contained
(kt)

 

V2O5 in concentrate
(%)

 

Magnetics
(%)

 

Measured (M)

 

18.08

 

1.19

 

215.0

 

3.19

 

30.55

 

Indicated (I)

 

1.70

 

1.28

 

21.7

 

3.12

 

34.64

 

Total M&I

 

19.78

 

1.20

 

236.7

 

3.19

 

30.90

 

Inferred

 

1.65

 

1.20

 

19.8

 

3.10

 

33.08

 

 

Resources within a pit shell using $34.20/t all in operating cost and reported at a 0.45% V2O5 cut-off, reviewed and confirmed by Fabio Valério Xavier (GE21).

 

Mineral Reserves have been estimated for the Campbell deposit with an effective date of May 2, 2017. The mine plan developed in the Technical Report is based on Measured and Indicated resources only as delineated in the table above. Reserves are reported using a sales price of $6.34 per lb of V2O5. The ultimate pit design and mine

 

10

 

plan was done to optimize kiln feed. The open pit Mineral Reserve estimate is based on a mine plan and open pit designs developed using modifying parameters including metal prices, metal recovery based on performance of the processing plant, operating and sustaining capital cost estimates based on the production schedule and equipment requirements. Other factors including; dilution, mining recovery, shipping terms, geotechnical characteristics of the rock mass, and the likelihood of obtaining land title, required permits environmental, social and legal licenses may affect the final Mineral Resources and Reserves.

 

The Mineral Reserves presented below were estimated by Porfírio Cabaleiro Rodriguez of GE21, who is a qualified person under NI 43-101 and a Member of the Australian Institute of Geoscientists.

 

Campbell Mineral Reserves — Maracás Menchen Mine

Block dimensions 5x5x5 (m) — Mine Recovery 100% and Dilution 5%

Effective date: May 2, 2017

 

Reserve Category

 

Tonnage
(kt)

 

V2O5 head grade
(%)

 

Magnetics
(%)

 

V2O5 in concentrate
(%)

 

Contained V2O5
(kt)

 

Proven

 

17,570

 

1.14

 

29.66

 

3.21

 

167.3

 

Probable

 

1,440

 

1.26

 

33.89

 

3.20

 

15.6

 

Total in pit Reserve

 

19,010

 

1.15

 

29.98

 

3.21

 

182.9

 

 

Notes to mineral reserve and mineral resource estimates:

 

(1)         A probable mineral reserve is the economically mineable part of an indicated mineral resource, and in some circumstances, measured mineral resource.

 

(2)         A proven mineral reserve is, in most common circumstances, the economically mineable part of a measured mineral resource.

 

(3)         Mineral reserves are included in measured and indicated resources.

 

(4)         The reference point at which mineral reserves are defined is the point where the ore is delivered from the open pit to the crushing plant.

 

(5)         The mineral resource and mineral reserve estimates are reported in accordance with the National Instrument 43-101 — Standards of Disclosure for Mineral Projects (NI 43-101) and the CIM Definition Standards on Mineral Resources and Reserves (CIM Definition Standards) as a minimum standard.

 

The Company also completed a revised block model and updated mineral resource estimate for the Near Mine Targets incorporating the drilling from the 2011 program including 72 holes totalling 13,401 metres. The Near Mine Targets which extend north from Gulçari A for eight kilometres include from south to north: Gulçari A Norte, Gulçari B, São José, Novo Amparo and Novo Amparo Norte. All are hosted in the Rio Jacaré Intrusion.

 

The Mineral Resources presented in the following table are considered current (subject to the update for Novo Amparo Norte in the following “Recent Developments” section) and do not include any drill results from the 2018 or 2019 drill programs.

 

Satellite Deposits Mineral Resources

Effective date: May 2, 2017

 

Deposits

 

Category

 

Tonnes
(kt)

 

V2O5
(%)

 

Contained V2O5
(t)

 

Gulçari A Norte**

 

Inferred

 

9,730

 

0.84

 

81,388

 

Gulçari B**

 

Inferred

 

2,910

 

0.70

 

20,312

 

Novo Amparo**

 

Inferred

 

1,560

 

0.72

 

11,255

 

Novo Amparo Norte**

 

Inferred

 

9,720

 

0.87

 

84,453

 

São José**

 

Inferred

 

3,900

 

0.89

 

34,706

 

Satellite Deposits (Total)**

 

Inferred

 

27,820

 

0.83

 

232,114

 

 

** Resources within a pit shell using $34.20/t all in operating cost and reported at a 0.45% V2O5 cut-off, reviewed and confirmed by Porfírio Cabaleiro Rodriguez (GE21).

 

Notes to mineral reserve and mineral resource estimates:

 

(1)         Mineral resources within a pit shell using $34.20/t all in operating cost and reported at a 0.45% V2O5 cut-off, reviewed and confirmed by Fabio Valério Xavier (GE21).

 

(2)         Mineral resources are classified as measured, indicated and inferred based on relative levels of confidence in their estimation and on technical and economic parameters consistent with the methods most suitable to their potential commercial exploitation.

 

(3)         The mineral resource and mineral reserve estimates are reported in accordance with the National Instrument 43-101 — Standards of Disclosure for Mineral Projects (NI 43-101) and the CIM Definition Standards on Mineral Resources and Reserves (CIM Definition Standards) as a minimum standard.

 

(4)         The PEA is preliminary in nature and includes only inferred mineral resources that are considered too speculative geologically to have any economic consideration applied to them that would enable them to be categorized as a mineral reserve.  There is no certainty that the PEA will be realized. These results have no impact on the results of any pre-feasibility or feasibility with respect to the Maracás Menchen Mine.

 

GE21 recommended the Near Mine Targets be developed sequentially as follows: Novo Amparo Norte, Gulçari A Norte & Gulçari B, São José, Campbell in pit resources and Novo Amparo.

 

11

 

The Technical Report prepared by GE21 was designed to allow the Company to more fully optimize operations in order to maximize the Maracás Menchen Mine’s NPV and is based on the production of V2O5 from the Maracás Menchen Mine’s mineral resources as well as from its established mineral reserves. The report does not provide any credit for by-products, however Largo will continue to evaluate the technical and economic viability of all potential by-products. The Technical Report respects the definition of PEA as described in the CSA Staff Notice 43-307 — Mining Technical Report — Preliminary Economic Assessments, issued by the Canadian Securities Administrators on August 16, 2012.

 

Qualified Persons

 

Porfírio Cabaleiro Rodriguez, Mining Engineer, BSc (Mine Eng), MAIG employed by GE21, Leonardo Apparicio da Silva, Mining Engineer, BSc (Min Eng), MSc (Met Eng), MAIG associated to GE21, and Fabio Valerio Xavier, Geologist, BSc, Geol, MAIG associated to GE21, are the Qualified Persons as defined in NI 43-101 responsible for the Technical Report and are all independent of the Company.

 

Quality Assurance Quality Control

 

The scientific and technical information in this reserves and resources section of the MD&A has been reviewed and approved by Porfírio Cabaleiro Rodriguez, Mining Engineer, BSc (Mine Eng), MAIG, GE21 director; Leonardo Apparicio da Silva, Mining Engineer, BSc (Min Eng), MSc (Met Eng), MAIG; and Fabio Valerio Xavier, Geologist, BSc, Geol, MAIG, both employed by GE21, all of whom are Qualified Persons as defined in NI 43-101.

 

Recent Developments

 

The Company completed a two-phase exploration program in 2018. Phase I was a 2,000 metre in-pit drill program designed to further define the reserve block model for production over the next two to three years in the Campbell Pit. This program began in the middle of April 2018 and was completed on May 30, 2018. The in-pit program completed 31 holes totalling 2,323 metres. The data was modelled and used for mine planning and development purposes. Consultants from GE21 assisted in the modelling.

 

Phase II included a 4,950 metre drilling program focused on upgrading and expanding the Near Mine Targets and along strike high priority targets. Drilling began on June 4, 2018 with two rigs focused at Novo Amparo Norte and the Company completed 24 holes totalling 4,223 metres prior to December 31, 2018. This included 13 infill and 11 step out holes. On December 19, 2018, the Company announced that this program had expanded the mineralization to the north and south at Novo Amparo Norte. Infill drilling was designed to upgrade the resource category at Novo Amparo Norte. Additionally, seven holes were drilled on targets south of the Campbell pit. The drill program was completed on October 23, 2018.

 

The Company extended the Phase II definition drilling program at Novo Amparo Norte in the first quarter of 2019.  Diamond drilling was initiated at Novo Amparo Norte on January 15, 2019. In total, 47 diamond drill holes (5,404 metres) were completed. The work focused on increasing confidence in the resource categories and extending mineralisation at depth and along strike. This program was completed mid-February 2019. On June 11, 2019, the Company reported a new resource estimate for Novo Amparo Norte based on 12,911 metres (88 drill holes) of drilling with an effective date of May 31, 2019.

 

Novo Amparo Norte Mineral Resources

Effective date: May 31, 2019

 

Category

 

Tonnes
(million)

 

V2O5 head grade
(%)

 

Magnetics
(%)

 

Magnetic
concentrate V2O5
(%)

 

V2O5 contained in
magnetic concentrate
(t)

 

Measured (M)

 

6.25

 

0.91

 

33.1

 

2.32

 

48,046

 

Indicated (I)

 

5.98

 

0.85

 

28.1

 

2.50

 

41,996

 

Total M&I

 

12.23

 

0.88

 

30.7

 

2.41

 

90,042

 

Inferred

 

11.33

 

0.90

 

31.2

 

2.46

 

86,960

 

 

(1)         Mineral Resources have been classified using the Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”), CIM Standards on Mineral Resources and Reserves, Definitions and Guidelines prepared by the CIM Standing Committee on Reserve Definitions and adopted by the CIM Council.

 

(2)         Mineral Resources which are not Mineral Reserves do not have demonstrated economic viability.  The Inferred Mineral Resource in this estimate has a lower level of confidence than that applied to the Measured and Indicated Mineral Resource.  It is reasonably expected that a portion of the Inferred Mineral Resource could be upgraded to an Indicated Mineral Resource with continued exploration.

 

12

 

(3)         Magnetic content is determined by Davis Tube Test methodology.  V2O5 content of the magnetic concentrate was determined by XRF79C methodology at the SGS facility in Belo Horizonte, Brazil.

 

(4)         Assuming only mineralized zones grading 0.45% V2O5 or greater

 

(5)         Numbers may not add up exactly due to rounding.

 

In Q2 2019 exploration work shifted to the Novo Amparo deposit where 4,646 metres (24 drill holes) of drilling were completed. Drilling was also completed at the São José deposit where 2,813 metres (18 drill holes) of drilling were completed. Further drilling was carried out on the Gulçari A Norte and Gulçari B (now considered as one target — “Gulçari A Norte”). Drilling on all targets focused on extending and upgrading known mineralization as defined in the 2017 Technical Report. The Company also completed 1,177 metres of drilling (three holes) neat the Campbell Pit to explore for target horizons down dip and along strike of the current reserve area.

 

In Q4 2019 work focused primarily on the Gulçari A South target where 2,313 metres (16 drill holes) were completed.

 

Based on all diamond drilling across the Near Mine Targets, a new geological interpretation of the Rio Jacaré intrusion was formulated that has helped the Company to better understand the intrusive complex and improve drilling targeting and interpretation of mineralized zones. Diamond drilling was completed in early December 2019 and all analytical data has now been received.

 

After delays experienced in early 2020 due to the COVID-19 pandemic, exploration drilling was ramped up and 14,007 metres of drilling (80 holes) was completed in Q3 2020. Drilling focused on definition drilling at Novo Amparo Norte, Gulcari A Norte and additional drilling at the Campbell Pit. In the year to the date of the MD&A, the Company has drilled 19,465 metres (109 holes).  In early October 2020, drills were moved to the São José and Novo Amparo deposits for further expansion and resource definition drilling to gain a greater level of understanding of these deposits.

 

Outlook

 

The Company has developed an Exploration Master Plan (“EMP”) for 2019 to 2021 to advance known deposits, increase resources and reserves, further evaluate the potential for along strike continuation of the vanadium rich magnetite mineralization and to maintain the Company’s mineral concessions to the north and south of the Campbell deposit. The EMP includes ground magnetic surveys, mapping, sampling, drilling and modelling of deposits on the mineral concessions. Where required, landowners are being contacted for permission to access their lands to perform exploration work. In addition, necessary permits for vegetation suppression are in process and upon receipt, the Company will continue with its planned exploration program.

 

The Company is currently reviewing this plan and updating it to reflect the work completed to date and new targets generated by the exploration work.

 

The Company has planned for 22,500 metres of drilling on the Near Mine Targets in 2020, primarily to upgrade and expand known resources to determine initial mining opportunities. Additional drilling (7,500 metres) has been planned in and around the Campbell Pit to test for down dip continuations of known mineralisation.  Mineralisation at the Campbell Pit remains open at depth based on current drill results. Exploration on the South Block will include a soil geochemistry sampling survey to identify areas of anomalous mineralisation associated with known magnetic anomalies to further refine exploration targeting. Planned drilling on the South Block has been postponed to 2021 and beyond due to the compressed time frame and priority drilling targets in 2020.

 

The Company does not anticipate any further disruptions to the overall 2020 exploration plan. The São José and Novo Amparo targets, as well as depth extension drilling at the Campbell Pit, will be the focus of exploration activities in Q4 2020.

 

Campo Alegre de Lourdes

 

Recent Developments

 

The Company completed a 1,200-metre drilling program in December 2018 and has finalized the geological and structural mapping needed to satisfy the Company’s contractual requirements and to develop the Company’s knowledge of mineralization.

 

In Q3 2019, a limited drill program was completed at the Morro Branca target at the Campo Alegre de Lourdes project.   From July 5 to August 5, 2019 the Company completed six diamond drill holes (1,016 metres) to test down dip extension of mineralisation and to collect material for additional metallurgical testing at the Morro Branca target. 

 

13

 

Internal studies to determine potential recovery of both V2O5 and titanium dioxide (“TiO2”) from the vanadiferous titanomagnetite (“VTM”) mineralisation are being complimented with additional work currently underway at SGS Lakefield’s facility in Canada.  This metallurgical testing continues and is being supplemented through the Company’s internal work. The agreement with Companhia Baiana de Pesquisa Mineral (“CBPM”) expired on January 11, 2020.  Prior to expiration the Company met with CBPM representatives and agreed to extend the Research Agreement for an additional two years to allow the Company to continue to evaluate the geological and economic potential of the project and the renewed agreement now extends the working relationship to January 11, 2022.

 

During Q3 2020, the Company incurred $nil in expenditures (Q3 2019 — $121) at the Campo Alegre de Lourdes project.

 

Outlook

 

Additional metallurgical work is planned in 2020. The Company will continue to evaluate all technical information and will formulate an appropriate work program based on continued metallurgical testing.

 

Northern Dancer

 

Recent Developments

 

Management is not conducting any further work at this time on the Northern Dancer property, as the majority of the Company’s efforts are focused on the Maracás Menchen Mine.

 

During Q3 2020, the Company incurred $2 in expenditures (Q3 2019 — $2) at the Northern Dancer project.

 

Outlook

 

Management is not planning any significant expenditures for the foreseeable future. The Company was issued with an amended Inspector’s Direction for reclamation work with respect to historic drill roads and drill sites on the property. Due to COVID-19 restrictions for travel and work as defined by the Yukon Territory government, the time frame to complete this work was extended to July 1, 2021. The Company is in the process of assessing the Inspector’s Direction and developing an action plan to resolve the outstanding issues.

 

Currais Novos Tungsten Tailings Project

 

Recent Developments

 

Management is not conducting any work at this time on the Currais Novos Tungsten Tailings Project, as the majority of the Company’s efforts are focused on the Maracás Menchen Mine.

 

Outlook

 

Management is not planning any significant expenditures for the foreseeable future.

 

FINANCIAL INSTRUMENTS

 

Financial assets and financial liabilities at September 30, 2020 and December 31, 2019 were as follows:

 

 

 

September 30,
2020

 

December 31,
2019

 

Cash

 

$

74,895

 

$

127,499

 

Restricted cash

 

—

 

76

 

Amounts receivable

 

8,326

 

189

 

Accounts payable and accrued liabilities

 

9,607

 

77,741

 

Debt

 

24,788

 

—

 

 

The Company’s risk exposures and the impact on the Company’s financial instruments are summarized in note 20. There have been no changes in the risks, objectives, policies and procedures from the previous year.

 

14

 

LIQUIDITY AND CAPITAL RESOURCES

 

The Company’s continuance as a going concern is dependent on its ability to maintain profitable levels of operations.

 

At December 31, 2019, the price per lb of V2O5 was between $4.80 and $5.85. This narrowed to a range of between $5.10 and $5.60 at September 30, 2020, with an average of approximately $5.33 for Q3 2020, compared with approximately $7.16 for Q3 2019, $6.07 for Q1 2020 and $6.14 for Q2 2020.

 

The average price per lb of V2O5 was approximately $5.35 for October 2020. At the date of the MD&A, the market price of V2O5 was in a range of $4.90 to $5.30 per lb.

 

The Company is continuing to monitor the rapidly developing impacts of the COVID-19 pandemic and will take all possible actions to help minimize the impact on the Company and its people. Given these uncertainties, the Company secured two credit facilities in Q1 2020 to provide it with additional cash resources should the impacts be significant.

 

The adequacy of the Company’s capital structure is assessed on an ongoing basis and adjusted as necessary after taking into consideration the Company’s strategy, vanadium prices, economic conditions and associated risks. To maintain or adjust its capital structure, the Company may adjust capital expenditures, issue new common shares or take on new debt. At September 30, 2020, the Company’s debt balance was $24,788 as a result of the two credit facilities as described below and in note 12.

 

Credit facilities

 

On March 18, 2020, the Company secured a $13,000 credit facility with a bank in Brazil. This facility was fully drawn down and proceeds of R$65,980 ($13,000) were received on March 20, 2020. This facility is due to be repaid as a lump sum payment on March 12, 2021, together with accrued interest at a rate of 3.35% per annum.

 

On March 24, 2020 the Company secured a $11,788 credit facility with a second bank in Brazil. This facility was fully drawn down and proceeds of R$60,000 ($11,788) were received on March 24, 2020. This facility is due to be repaid as a lump sum payment on March 18, 2021, together with accrued interest at a rate of 6.29% per annum.

 

Maracás Menchen Mine

 

The Company’s vanadium production commenced during August 2014, with the first sale of V2O5 flake concluded during September 2014. Since this time, the Company has continued to further ramp up the production and sales of V2O5, as described in the “Maracás Menchen Mine” section above. In connection with the ramp-up, the Company has also evaluated its future financial requirements, including inter alia its sustaining capital and working capital needs for the next 12 months.

 

At September 30, 2020, the Company had an accumulated deficit of $78,784 since inception (December 31, 2019 — $78,870) and had a net working capital surplus of $84,671 (December 31, 2019 —$78,380) (defined as current assets less current liabilities). The total amount due within 12 months on the Company’s debt is $24,788 (December 31, 2019 — $nil).

 

The following table details the Company’s expected remaining contractual cash flow requirements at September 30, 2020 for its liabilities and commitments with agreed repayment periods. The amounts presented are based on the undiscounted cash flows and therefore, may not equate to the carrying amounts on the consolidated statement of financial position.

 

 

 

Less than
6 months

 

6 months
to 1 year

 

1 to 3 years

 

Over 3 years

 

Accounts payable and accrued liabilities

 

$

9,607

 

$

—

 

$

—

 

$

—

 

Debt

 

24,788

 

—

 

—

 

—

 

Operating and purchase commitments

 

11,205

 

1,294

 

334

 

32

 

 

 

$

45,600

 

$

1,294

 

$

334

 

$

32

 

 

The Company’s principal sources of liquidity are its cash flow from operating activities and cash of $74,895 (December 31, 2019 — $127,499). In response to the vanadium price decreases throughout 2019, the Company has adopted certain measures to manage its liquidity risk including repaying its Notes during the year ended

 

15

 

December 31, 2019 and securing two new credit facilities in Q1 2020. Despite these measures, and in conjunction with the current vanadium price environment, a risk exists that the Company will not have sufficient liquidity to meet its obligations as they come due. At September 30, 2020, the Company’s trade receivable with its former off-take partner was in a liability position of $93 and was classified as trade payables within accounts payable and accrued liabilities (refer to notes 11 and 20(a)) (December 31, 2019 —$67,325).

 

OUTSTANDING SHARE DATA

 

(Exercise prices presented in this section are in Canadian dollars and also not thousands).

 

At September 30, 2020, there were 563,781 common shares of the Company outstanding. At the date of this MD&A, there were 563,961 common shares of the Company outstanding.

 

At September 30, 2020, under the share compensation plan of the Company, 2,366 RSUs were outstanding and 5,916 stock options were outstanding with exercise prices ranging from C$0.46 to C$3.04 and expiry dates ranging between September 16, 2021 and March 24, 2025. If exercised, the Company would receive proceeds of C$4,884. The weighted average exercise price of the stock options outstanding is C$0.83.

 

As of the date of this MD&A, 2,342 RSUs and 5,882 stock options were outstanding with exercise prices ranging from C$0.46 to C$3.04 and expiry dates ranging between September 16, 2021 and March 24, 2025.

 

At September 30, 2020, 103,994 common share purchase warrants were outstanding with exercise prices ranging from C$0.29 to C$1.15 and expiring between December 31, 2020 and December 13, 2022. If these warrants were exercised, the Company would receive proceeds of C$43,154. The weighted average exercise price of the warrants is C$0.41.

 

As of the date of this MD&A, 103,814 common share purchase warrants were outstanding with exercise prices ranging from C$0.29 to C$1.15 and expiring between December 31, 2020 and December 13, 2022.

 

TRANSACTIONS WITH RELATED PARTIES

 

The Q3 2020 unaudited condensed interim consolidated financial statements include the financial statements of the Company and its subsidiaries. There have been no changes in the Company’s ownership interests in its subsidiaries since December 31, 2019. The Company had transactions with related parties during Q3 2020. Refer to note 17.

 

Additional information regarding the compensation of officers and directors of the Company is disclosed in the Company’s management information circular, which is available under the profile of the Company on SEDAR at www.sedar.com.

 

COMMITMENTS AND CONTINGENCIES

 

At September 30, 2020, the Company was party to certain management and consulting contracts. Minimum commitments under the agreements are approximately $2,339 and all payable within one year. These contracts also require that additional payments of up to approximately $3,508 be made upon the occurrence of certain events such as change of control. As the triggering event has not occurred, the contingent payments have not been reflected in these consolidated financial statements.

 

In 2008, Largo agreed to sell 100% of its vanadium production under an off-take agreement which, following the election by the Company, expired at the end of April 2020. The Company has entered into a number of contracts with third party customers to deliver monthly quantities of the Company’s various vanadium products. A significant proportion of the Company’s monthly vanadium production after April 2020 has been committed, with deliveries beginning in June 2020.

 

The Company’s mining and exploration activities are subject to various federal, provincial and international laws and regulations governing the protection of the environment. These laws and regulations are continually changing and generally becoming more restrictive. The Company has made payments to comply with such laws and regulations.

 

16

 

The Company indemnifies its directors and officers against any and all claims or losses reasonably incurred in the performance of their service to the Company to the extent permitted by law. The Company has acquired and maintains liability insurance for its directors and officers.

 

The Company is committed to a minimum amount of rental payments under five leases of office space which expire between October 31, 2020 and December 31, 2023. Minimum rental commitments remaining under the leases are approximately $601, including $240 due within one year. In addition, minimum rental commitments remaining under other short-term leases are approximately $13, all due within one year.

 

At the Company’s Maracás Menchen Mine, the Company has entered into purchase order contracts with remaining amounts due related to goods not received or services not rendered as of September 30, 2020 of $9,911.

 

The Company, through its subsidiaries, is party to legal proceedings in the ordinary course of its operations related to legally binding agreements with various third parties under supply contracts and consulting agreements. At September 30, 2020 two such proceedings were ongoing, each in Brazil. The first relates to a supply agreement for the Maracás Menchen Mine which was filed with the courts in October 2014. The amount claimed totals R$9,900 ($1,755), with a counterclaim filed by Vanádio for R$10,700 ($1,897). A provision of R$1,281 ($227) has been recognized at September 30, 2020 for the probable loss (December 31, 2019 — R$1,324 ($328)). The second proceeding relates to a consulting agreement dispute for which R$3,900 ($691) (December 31, 2019 — R$3,900 ($968)) has been claimed against two of the Company’s subsidiaries. No provision has been recognized for this proceeding. The Company and its subsidiaries are also party to legal proceedings regarding labour matters. A provision was recorded at December 31, 2019 for such proceedings in an amount of R$3,468 ($860). At September 30, 2020, the provision recognized was R$3,320 ($589). The outcome of these proceedings remains dependent on the final judgment, which the Company does not expect to be delivered within the next 12 months. Management does not expect the outcome of any of the remaining proceedings to have a materially adverse effect on the results of the Company’s financial position or results of operations. Should any losses result from the resolution of these claims and disputes, they will be charged to operations in the period that they are determined.

 

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING

 

Disclosure Controls and Procedures

 

The Company’s disclosure controls and procedures (“DC&P”) are designed to provide reasonable assurance that all relevant information is communicated to management to allow timely decisions regarding required disclosure. An evaluation of the effectiveness of the Company’s DC&P, as defined under the rules of the Canadian Securities Administration, was conducted as at December 31, 2019 under the supervision of the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”) and with the participation of management. Based on the results of that evaluation, the CEO and CFO concluded that the Company’s DC&P were effective as at December 31, 2019 providing reasonable assurance that the information required to be disclosed in the Company’s annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported in accordance with securities legislation.

 

Since the December 31, 2019 evaluation, there have been no material changes to the Company’s DC&P.

 

Internal Control over Financial Reporting

 

Internal control over financial reporting (“ICFR”) is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. ICFR should include those policies and procedures that establish the following:

 

·                      maintenance of records in reasonable detail, that accurately and fairly reflect the transactions and dispositions of assets;

 

·                      reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with applicable IFRS;

 

·                      receipts and expenditures are only being made in accordance with authorizations of management or the Board of Directors; and

 

17

 

·                      reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial instruments.

 

The Company’s management, under supervision of the CEO and CFO, assessed the effectiveness of the Company’s ICFR based on the criteria established in Internal Control — Integrated Framework (2013) issued by The Committee of Sponsoring Organizations of the Treadway Commission and concluded that as at December 31, 2019, the Company’s ICFR was effective.

 

During the three months ended September 30, 2020, the Company did not make any significant changes to its ICFR that would have materially affected, or reasonably likely to materially affect, its ICFR.

 

Limitations of Disclosure Controls and Procedures and Internal Control over Financial Reporting

 

The Company’s management, including the CEO and CFO, believe that due to inherent limitations, any DC&P or ICFR, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that any design will not succeed in achieving its stated goals under all potential future conditions. Accordingly, because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Additionally, management is required to use judgment in evaluating DC&P and ICFR.

 

SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS

 

The preparation of the unaudited condensed interim consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Actual outcomes could differ from these estimates. These unaudited condensed interim consolidated financial statements include estimates, which, by their nature, are uncertain. The impacts of such estimates are pervasive throughout the unaudited condensed interim consolidated financial statements and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised, and the revision affects both current and future periods.

 

Significant areas requiring the use of estimates and assumptions relate to the determination of mineral reserve estimates and the impact on stripping costs, useful lives of mine properties, plant and equipment, impairment analysis of non-financial assets and estimates of the timing of outlays for asset retirement obligations. Other significant areas include the valuation of mine properties, plant and equipment and development properties, estimates of provisions for environmental rehabilitation, current and deferred taxes and contingencies. Refer to note 4(d) of the annual consolidated financial statements for the year ended December 31, 2019 for a detailed description of these areas of significant judgment, estimates and assumptions. Actual results could differ from those estimates.

 

CHANGES IN ACCOUNTING POLICIES

 

The basis of presentation, and accounting policies and methods of their application in the Q3 2020 unaudited condensed interim consolidated financial statements are consistent with those used in the Company’s annual consolidated financial statements for the year ended December 31, 2019, except as disclosed in notes 3, 4(b) and 5.

 

18

 

NON-GAAP(2) MEASURES

 

The Company uses certain non-GAAP financial performance measures in its MD&A, which are described in the following section.

 

Revenues Per Pound

 

The Company’s MD&A refers to revenues per pound sold, a non-GAAP performance measure that is used to provide investors with information about a key measure used by management to monitor performance of the Company.

 

This measure, along with cash operating costs and total cash costs, is considered to be one of the key indicators of the Company’s ability to generate operating earnings and cash flow from its Maracás Menchen Mine and sales activities. This revenues per pound measure does not have any standardized meaning prescribed by IFRS and differs from measures determined in accordance with IFRS. This measure is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. This measure is not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.

 

The following table provides a reconciliation of this measure per pound sold to revenues as per the Q3 2020 unaudited condensed interim consolidated financial statements.

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 30,
2020

 

September 30,
2019

 

September 30,
2020

 

September 30,
2019

 

Revenues(1)

 

$

27,474

 

$

24,131

 

$

77,733

 

$

79,299

 

V2O5 equivalent sold (000s lb)

 

5,115

 

5,997

 

14,348

 

16,094

 

Revenues per pound sold ($/lb)

 

$

5.37

 

$

4.02

 

$

5.42

 

$

4.93

 

 

(1)         As per note 21.

 

Cash Operating Costs Per Pound

 

The Company’s MD&A refers to cash operating costs per pound, a non-GAAP performance measure, in order to provide investors with information about a key measure used by management to monitor performance. This information is used to assess how well the Maracás Menchen Mine is performing compared to plan and prior periods, and also to assess its overall effectiveness and efficiency.

 

Cash operating costs includes mine site operating costs such as mining costs, plant and maintenance costs, sustainability costs, mine and plant administration costs, royalties, distribution costs and sales, general and administrative costs (all for the mine properties segment), but excludes depreciation and amortization, share-based payments, foreign exchange gains or losses, commissions, reclamation, capital expenditures and exploration and evaluation costs. Operating costs not attributable to the mine properties segment are also excluded, including product acquisition costs and inventory write-downs. These costs are then divided by the pounds of vanadium sold that were produced by the Maracás Menchen Mine to arrive at the cash operating costs per pound. Prior to 2020, these costs were divided by the pounds of production from the Maracás Menchen Mine, rather than pounds sold. These periods have been recalculated using produced pounds sold in the following table. This measure differs to the new total cash costs non-GAAP measure the Company will use to measure its overall performance starting in 2020 (see later in this section).

 

These measures, along with revenues, are considered to be one of the key indicators of the Company’s ability to generate operating earnings and cash flow from its Maracás Menchen Mine. These cash operating costs measures do not have any standardized meaning prescribed by IFRS and differ from measures determined in accordance with IFRS. These measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These measures are not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.

 

(2) GAAP – Generally Accepted Accounting Principles.

 

19

 

In addition, the Company’s MD&A refers to cash operating costs excluding royalties. This is a non-GAAP performance measure and is calculated as cash operating costs less royalties, as disclosed in the following table.

 

The following table provides a reconciliation of cash operating costs per pound for the Maracás Menchen Mine to operating costs as per the Q3 2020 unaudited condensed interim consolidated financial statements.

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 30,
2020

 

September 30,
2019

 

September 30,
2020

 

September 30,
2019

 

Operating costs(1)

 

$

20,977

 

$

23,673

 

$

56,786

 

$

70,271

 

Professional, consulting and management fees(2)

 

853

 

1,321

 

2,123

 

3,468

 

Other general and administrative expenses(2)

 

390

 

111

 

1,155

 

602

 

Less: product acquisition costs(1)

 

(3,877

)

—

 

(7,180

)

—

 

Less: inventory write-down(3)

 

—

 

—

 

(317

)

—

 

Less: depreciation and amortization expense(1)

 

(3,264

)

(5,601

)

(11,745

)

(17,762

)

Cash operating costs

 

15,079

 

19,504

 

40,822

 

56,579

 

Less: royalties(1)

 

(1,552

)

(1,381

)

(5,149

)

(4,451

)

Cash operating costs excluding royalties

 

13,527

 

18,123

 

35,673

 

52,128

 

Produced V2O5 sold (000s lb)(4)

 

4,310

 

5,997

 

13,195

 

16,094

 

Cash operating costs per pound ($/lb)(4)

 

$

3.50

 

$

3.25

 

$

3.09

 

$

3.52

 

Cash operating costs excluding royalties per pound ($/lb)(4)

 

$

3.14

 

$

3.02

 

$

2.70

 

$

3.24

 

 

(1)         As per note 22.

 

(2)         As per the Mine properties segment in note 18.

 

(3)         As per note 7.

 

(4)         Cash operating costs per pound and cash operating costs excluding royalties per pound for Q3 2019 were previously calculated and presented on a pounds produced basis (V2O5 produced (000s lb) = 6,508; V2O5 sold (000s lb) = 5,997). These measures have been calculated and presented on a pounds sold basis in this MD&A.

 

Total Cash Costs

 

The Company’s MD&A refers to total cash costs, a non-GAAP performance measure, in order to provide investors with information about a key measure used by management to monitor performance. This information is used to assess how well the Company is performing at producing and selling vanadium products compared to plan and prior periods, and also to assess its overall effectiveness and efficiency.

 

Total cash costs are a non-GAAP performance measure that includes all operating costs, sales and distribution costs and the Company’s total professional, consulting and management fees and other general and administrative expenses. Total cash costs exclude royalties, depreciation and amortization, share-based payments, foreign exchange gains or losses, commissions, reclamation costs, exploration and evaluation costs and capital expenditures. These costs are then divided by the total pounds of vanadium sold by the Company to arrive at total cash costs.

 

This measure differs from cash operating costs per pound in that it includes all operating costs, sales and distribution costs, professional, consulting and management fees and other general and administrative expenses, rather than just those from the Mine properties segment, and is calculated on total V2O5 equivalent pounds sold rather than pounds sold that were produced by the Maracás Menchen Mine. The Company believes this will be a more accurate reflection of its all-in unit costs.

 

This total cash costs measure does not have any standardized meaning prescribed by IFRS and differs from measures determined in accordance with IFRS. This measure is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. This measure is not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.

 

The following table provides a reconciliation of total cash costs to operating costs as per the Q3 2020 unaudited condensed interim consolidated financial statements.

 

20

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 30,
2020

 

September 30,
2020

 

Operating costs(1)

 

$

20,977

 

$

56,786

 

Professional, consulting and management fees(2)

 

2,094

 

5,026

 

Other general and administrative expenses(2)

 

643

 

2,302

 

Less: depreciation and amortization expense(1)

 

(3,264

)

(11,745

)

Less: royalties(1)

 

(1,552

)

(5,149

)

 

 

$

18,898

 

$

47,220

 

V2O5 equivalent sold (000s lb)

 

5,115

 

14,348

 

Total cash costs ($/lb)

 

$

3.69

 

$

3.29

 

 

(1)         As per note 22.

 

(2)         As per the condensed interim consolidated statement of income (loss) and comprehensive income (loss).

 

RISKS AND UNCERTAINTIES

 

The Company is subject to various business, financial and operational risks that could materially adversely affect the Company’s future business, operations and financial condition. These risks could cause such future business, operations and financial condition to differ materially from the forward-looking statements and information contained in this MD&A and as described in the Cautionary Statement Regarding Forward-Looking Information found in this MD&A.

 

The Company’s business activities expose it to significant risks due to the nature of mining, development and exploration activities. The ability to manage these risks is a key component of the Company’s business strategy.  Management is forward looking in its assessment of risks. Identification of key risks occurs in the course of business activities, pursuing approved strategies and as part of the execution of risk oversight responsibilities at the management and Board of Directors’ level.

 

For a full discussion of the Company’s Risks and Uncertainties, please refer to the Annual Information Form for the year ended December 31, 2019, which is filed to the Company’s profile on SEDAR at www.sedar.com.

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

 

The information presented in this MD&A contains “forward-looking information” and “forward-looking statements” within the meaning of applicable Canadian and United States securities laws concerning the Company’s projects, capital, anticipated financial performance, business prospects and strategies and other general matters. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those included in the forward-looking information. The use of words such as “intend”, “anticipate”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “should”, “believe” and similar expressions are intended to identify forward-looking information. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance are not statements of historical fact and may constitute forward-looking information. Statements relating to mineral resources are also forward-looking information, as they involve the implied assessment, based on certain estimates and assumptions that the mineral resources described can be profitably produced in the future. There is no certainty that it will be commercially viable to produce any portion of the mineral resources.

 

Forward-looking information includes statements with respect to: the Company’s goals regarding development of its projects and further exploration and development of its properties; the Company’s proposed plans for advancing its projects, and potential future exploration and development projects; expectations regarding the continuity of mineral deposits; future prices of V2O5; future production at our Maracás Menchen Mine; the extent and overall impact of the COVID-19 pandemic; the results in the Technical Report including resource estimates; expectations regarding any environmental issues that may affect planned or future exploration and development programs and the potential impact of complying with existing and proposed environmental laws and regulations; receipt and timing of third party approvals; government regulation of mineral exploration and development operations in Brazil; expectations regarding any social or local community issues in Brazil that may affect planned or future exploration and development programs; and statements in respect of V2O5 demand and supply. These

 

21

 

statements and information are only predictions based on current information and knowledge, some of which may be attributed to third party industry sources. Actual future events or results may differ materially. Undue reliance should not be placed on such forward-looking information, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. By its nature, forward-looking information involves numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking information will not be realized.

 

The following are some of the assumptions upon which forward-looking information is based: that general business and economic conditions will not change in a material adverse manner; demand for, and stable or improving price of V2O5; receipt of regulatory and governmental approvals, permits and renewals in a timely manner; that the Company will not experience any material accident, labour dispute or failure of plant or equipment or other material disruption in the Company’s operations at the Maracás Menchen Mine; the availability of financing for operations and development; the Company’s ability to procure equipment and operating supplies in sufficient quantities and on a timely basis; that planned expansion at the Maracás Menchen Mine will be completed in budget and in a reasonable timeframe and that the results of such expansion will be sufficient to expand the existing resources consistent with management’s expectations; that the estimates of the resources and reserves at the Maracás Menchen Mine are within reasonable bounds of accuracy (including with respect to size, grade and recovery); that the Company’s current expansion of development programs and objectives can be achieved; the Company’s ability to attract and retain skilled personnel and directors; and the accuracy of the Company’s mineral resource estimates (including size, grade and recoverability) and the geological, operational and price assumptions on which these are based.

 

Actual results could differ materially from those anticipated in this forward-looking information as a result of the risks and uncertainties including, without limitation:  volatility in prices of, and demand for, V2O5; risks inherent in mineral exploration and development; uncertainties associated with estimating mineral resources; uncertainties related to title to the Company’s mineral projects; revocation of government approvals; tightening of the credit markets, global economic uncertainty and counterparty risk; failure of plant, equipment or processes to operate as anticipated; unexpected events and delays during construction and development; competition for, among other things, capital and skilled personnel; geological, technical and drilling problems; fluctuations in foreign exchange or interest rates and stock market volatility; rising costs of labour and equipment; risks associated with political and/or economic instability in Brazil; inherent uncertainties involved in the legal dispute resolution process, including in foreign jurisdictions; changes in income tax and other laws of foreign jurisdictions; and other factors discussed under “Risk Factors” in the Company’s Annual Information Form for the year ended December 31, 2019 which is filed to the Company’s profile on SEDAR at www.sedar.com, and any additional risks as included in “Risks and Uncertainties” above. Assumptions relating to the potential mineralization of the Maracás Menchen Mine are discussed in the Technical Report which is available under the Company’s profile on SEDAR.

 

Additional risks and uncertainties not currently known to the Company, or that the Company currently deems to be immaterial, may also materially and adversely affect the Company’s business and prospects. Should one or more of these risks and uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in forward-looking information. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking information, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. The reader is cautioned not to place undue reliance on forward-looking information.

 

The forward-looking information is presented in this MD&A for the purpose of assisting investors in understanding the Company’s plans, objectives and expectations in making an investment decision and may not be appropriate for other purposes. This forward-looking information is expressly qualified in its entirety by this cautionary statement. Forward-looking information contained in this MD&A or documents incorporated herein by reference are made as of the date hereof or the document incorporated herein by reference, as applicable, and are accordingly subject to change after such date. The Company disclaims any obligation to update any such forward-looking information to reflect events or circumstances after the date of such information, or to reflect the occurrence of anticipated or unanticipated events, except as required by law.

 

22

 

The information presented contains “forward-looking statements”, within the meaning of the United States Private Securities Litigation Reform Act of 1995, and “forward-looking information” under similar Canadian legislation, concerning the business, operations and financial performance and condition of the Company. Forward-looking statements and forward-looking information include, but are not limited to, statements with respect to the estimation of mineral reserves and mineral resources; the realization of mineral reserve estimates; the timing and amount of estimated future production; costs of production; metal prices and demand for materials; capital expenditures; success of exploration and development activities; permitting time lines and permitting, mining or processing issues; government regulation of mining operations; environmental risks; and title disputes or claims. Generally, forward-looking statements and forward-looking information can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “guidance”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”.  Certain terms appearing in the following table are defined previously in this MD&A.  This table contains the material forward-looking statements made by the Company in this MD&A, the assumptions made by the Company in making those statements and the risk factors associated with those assumptions.

 

Forward-looking
Statements

 

Assumptions

 

Risk Factors

The Q3 2020 unaudited condensed interim consolidated financial statements were prepared on a going concern basis. The going concern basis assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business.

 

The Company has assumed that it will be able to continue in operation for the foreseeable future and will be able to discharge its liabilities and commitments in the normal course of business, as it anticipates that it will address working capital and other shortfalls through positive cash flow from operations.

 

The Company’s continuance as a going concern is dependent on its ability to maintain profitable levels of operations.

Given the volatility in the market price of V2O5 since December 31, 2019, the Company anticipates that it could continue to realize significant re-measurements of trade receivables / payables in future periods until such time as prices stabilize or the off-take agreement ends.

The adequacy of the Company’s capital structure is assessed on an ongoing basis and adjusted as necessary after taking into consideration the Company’s strategy, vanadium prices, economic conditions and associated risks. To maintain or adjust its capital structure, the Company may adjust capital expenditures, issue new common shares or take on new debt. At September 30, 2020, the Company’s debt balance was $24,788 as a result of securing two credit facilities as described in note 12.

 

 

 

 

 

Production volumes are expected to achieve the expanded nameplate capacity of 1,000 tonnes per month during 2020.



2020 Production Guidance:
11,750 – 12,250 tonnes

 

The Company assumes that consistent production levels will continue at a level of or in excess of 1,000 tonnes per month.

 

The Company prepares future production estimates with respect to existing operations.

Actual production and costs may vary from the estimates for a variety of reasons such as estimates of grade, tonnage, dilution and metallurgical and other characteristics of the ore varying from the actual ore mined, revisions to mine plans, risks and hazards associated with mining, adverse weather conditions, unexpected labour shortages or strikes, equipment or design failures and other interruptions in production.

Production costs may also be affected by increased mining costs, variations in predicted grades of the deposits, increases in level of ore impurities, labour

 

23

 

Forward-looking
Statements

 

Assumptions

 

Risk Factors

 

 

 

 

costs, raw material costs, inflation and fluctuations in currency exchange rates. Failure to achieve production targets or cost estimates could have a material adverse impact on the Company’s sales, profitability, cash flow and overall financial performance.

In the event that the Company obtains debt financing, repayment terms associated with such financing will likely be based, among other things, on production schedule estimates. Any failure to meet such timelines or to produce amounts forecast may constitute defaults under such debt financing, which could result in the Company having to repay loans.

 

 

 

 

 

2020 Costs Guidance:
Cash operating costs excluding royalties(1)
$2.60 – 2.80

Total cash costs(1)
$3.20 – 3.40

(1) These measures are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this MD&A.

 

The Company assumes that its current estimation of future operating costs is accurate, as it is largely based on the current cost profile of operations at the Maracás Menchen Mine.

 

Capital and operating cost estimates made by management with respect to future projects, or current operations in the early stages of production are estimates which are in turn based, among other things, on interpretation of geological data, feasibility studies, anticipated climactic conditions and other information.

Any or all of the above could affect the accuracy of the estimates including unanticipated changes in grade and tonnage to be mined and processed; incorrect data on which engineering assumptions are made; unanticipated transportation costs; accuracy of equipment and construction cost estimates; difficulty or failure to meet scheduled construction completion dates, facility or equipment commissioning dates, or metal production dates; poor or unsatisfactory construction quality resulting in failure to meet completion, commissioning or production dates; increased expenditures required as a failure to meet completion, commissioning or production dates; capital overrun related to the completion of any construction phase including capital overrun associated with demobilization of construction workers and contractors; labour negotiations; unanticipated costs relating to the commencement of operations, ramp up and production sustainment; changes in government regulation (including regulations regarding prices, cost of consumables, royalties, duties, taxes, permitting and restrictions on production quotas or exportation of the Company’s products; and change in commodity input costs and quantities).

 

 

 

 

 

Sustaining capital expenditures of approximately $9,000 to $11,000 are expected to be required in 2020 to

 

Management assumes that its current estimation of capital expenditures is accurate, as based on operational

 

Capital and operating costs estimates made by management with respect to future projects, or current operations in production, or not yet in the production phase are estimates which are in turn based, among other things, on interpretation of

 

24

 

Forward-looking
Statements

 

Assumptions

 

Risk Factors

sustain current operational capacity (excluding capitalized waste stripping costs).

 

estimates produced and current experience with operations.

 

geological data, feasibility studies, anticipated climactic conditions and other information.

Any or all of these can affect the accuracy of the estimates including unanticipated changes in grade and tonnage to be mined and processed; incorrect data on which engineering assumptions are made; unanticipated transportation costs; accuracy of equipment and construction cost estimates; difficulty or failure to meet scheduled construction completion dates, facility or equipment commissioning dates, or metal production dates; poor or unsatisfactory construction quality resulting in failure to meet completion, commissioning or production dates; increased expenditures required as a failure to meet completion, commissioning or production dates; capital overrun related to the completion of any construction phase including capital overrun associated with demobilization of construction workers and contractors; labour negotiations; unanticipated costs relating to the commencement of operations, ramp up and production sustainment; changes in government regulation (including regulations regarding prices, cost of consumables, royalties, duties, taxes, permitting and restrictions on production quotas or exportation of the Company’s products; and change in commodity input costs and quantities).

 

Forward-looking statements and forward looking information are based on the opinions and estimates of management as of the date such statements are made, and they are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking statements or forward looking information, including, but not limited to, unexpected events during operations; variations in ore grade; risks inherent in the mining industry; delay or failure to receive board approvals;  timing and availability of external financing on acceptable terms; risks relating to international operations; actual results of exploration activities; conclusions of economic valuations; changes in project parameters as plans continue to be refined; and fluctuating metal prices and currency exchange rates.

 

Although management of the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements or forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements and forward-looking information. The Company does not undertake to update any forward-looking statements or forward-looking information that are incorporated by reference herein, except in accordance with applicable securities laws.

 

Investors are advised that National Instrument 43-101 of the Canadian Securities Administrators (“NI 43-101”) requires that each category of mineral reserves and mineral resources be reported separately.  Mineral resources that are not mineral reserves do not have demonstrated economic viability.

 

25

 

Cautionary Note to U.S. Investors Concerning Estimates of Measured, Indicated or Inferred Resources

 

This MD&A uses the terms “measured”, “indicated” and “inferred” mineral resources. United States investors are advised that while such terms are recognized and required by Canadian regulations, the United States Securities and Exchange Commission does not recognize them. Inferred mineral resources have a great amount of uncertainty as to their existence, and as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or other economic studies. United States investors are cautioned not to assume that all or any part of measured or indicated mineral resources will ever be converted into mineral reserves. United States investors are also cautioned not to assume that all or any part of an inferred mineral resource exists or is economically or legally mineable.

 

26

Exhibit 99.41

 

GRAPHIC

 

PRESS RELEASE

 

October 19, 2020

 

Largo Resources Announces Record Operational Performance in Q3 2020 with
V2O5 Production of 3,092 Tonnes and Lowers 2020 Cost Guidance

 

·             Record V2O5 production of 3,092 tonnes (6.8 million lbs(1)) in Q3 2020, a 5.0% increase over Q3 2019

 

·             Total sales exceeded production levels in August and September 2020 for the first time since commercial independence, highlighting successful rollout of the Company’s strategy

 

·             Record global V2O5 recovery rate(2)  of 84.2% in Q3 2020, an increase of 8.0% over Q3 2019

 

·             2020 cash cost guidance reduced: Cash operating cost excluding royalties(3) guidance lowered to US$2.60 — $2.80 / lb V2O5; Total cash cost(3) guidance lowered to US$3.20 to $3.40 / lb V2O5

 

·             Postponing cost-efficient nameplate capacity increase to Q1 2021: Planned kiln upgrades and cooler maintenance that will increase Largo’s production capacity by 10% with a CAPEX of only US$1.3 million are postponed to Q1 2021 due to COVID-19 restrictions

 

·             Focus on safe business continuity: On track to meet lower end of 2020 production guidance with strong production results expected in Q4 2020; 2020 sales guidance maintained

 

·             Strong vanadium demand in Q3 2020 in China from increased infrastructure spending on the back of recently announced stimulus packages as well as development of green technology applications to meet carbon footprint reduction targets

 

TORONTO — Largo Resources Ltd. (“Largo” or the “Company”) (TSX: LGO) (OTCQX: LGORF) is pleased to report third quarter 2020 production and global sales results from its Maracás Menchen Mine highlighted by a new quarterly production record of 3,092 tonnes (6.8 million lbs(1)) of vanadium pentoxide (“V2O5”) and a new record global recovery rate(2) of 84.2%.

 

Paulo Misk, President and Chief Executive Officer for Largo, stated: “The health and safety of our workforce continues to remain a top priority for Largo and our focus on preventative measures early on has enabled the Company to continue operations in a safe manner since March 2020. In Q3 2020, operations performed exceptionally well with the Company achieving a new quarterly V2O5 production record of 3,092 tonnes and a new quarterly global recovery(2) rate record of 84.2%. The Company has also reduced its cash operating cost excluding royalties(3) and total cash cost(3) guidance for 2020 to US$2.60 - $2.80 and US$3.20 - $3.40 / lb V2O5, respectively. This reflects our positive year-to-date performance and the Company’s expectations for the balance of the year. Additionally, the Company is on track to meet the lower end of its 2020 production guidance of 11,750 — 12,250 tonnes of V2O5 and we look forward to ending the year on another high note. I am very proud of the entire operations team as they continue to demonstrate their ability to effectively meet and exceed operational targets, especially during these uncertain times.”

 

 

He continued: “I am also very happy with our sales and trading performance in Q3 2020 with V2O5 equivalent sales of 1,062 tonnes in August 2020 and 1,060 tonnes in September 2020. From May to July 2020, we successfully built the necessary inventories to fill our sales pipeline and meet customer commitments as planned. Creating value through the control of our product from mine to end-user is a key priority for Largo and we are confident in delivering on our 2020 sales guidance of 9,500 to 10,000 tonnes of V2O5.” He concluded: “As a result of our commercial independence and sales flexibility, Largo has increased its sales in China to take advantage of higher prices and greater overall demand in Q3 2020. China continues to be the driver of global vanadium demand from increased infrastructure spending and the development of green technology applications. We expect additional global vanadium demand growth as a result of recently announced stimulus packages and a focus on carbon footprint reduction. These significant, long-term trends are forecast to increase the consumption of vanadium in rebar, high-quality steel applications and through new vanadium redox flow battery deployments around the world.”

 

A summary of Q3 2020 production results from the Maracás Menchen Mine is presented below:

 

Maracás Menchen Mine Production

 

Q3 2020

 

Q2 2020

 

Q1 2020

 

Q3 2019

 

 

 

 

 

 

 

 

 

 

 

Total Ore Mined (tonnes)

 

287,969

 

257,357

 

203,966

 

267,257

 

Ore Grade Mined - Effective Grade (%)(4)

 

1.28

 

1.20

 

1.61

 

1.52

 

 

 

 

 

 

 

 

 

 

 

Effective Grade of Ore Milled (%)(4)

 

1.26

 

1.29

 

1.59

 

1.44

 

Concentrate Produced (tonnes)

 

104,921

 

99,059

 

100,072

 

92,629

 

Grade of Concentrate (%)

 

3.32

 

3.20

 

3.36

 

3.26

 

Contained V2O5 (tonnes)

 

3,487

 

3,174

 

3,365

 

3,016

 

 

 

 

 

 

 

 

 

 

 

Crushing Recovery (%)

 

98.1

 

97.7

 

98.3

 

96.5

 

Milling Recovery (%)

 

96.5

 

94.7

 

98.4

 

97.0

 

Kiln Recovery (%)

 

92.5

 

91.7

 

88.3

 

88.8

 

Leaching Recovery (%)

 

99.7

 

99.1

 

96.6

 

97.2

 

Chemical Plant Recovery (%)

 

96.4

 

96.1

 

96.8

 

96.7

 

Global Recovery (%)(2)

 

84.2

 

80.8

 

79.9

 

78.1

 

 

 

 

 

 

 

 

 

 

 

V2O5 produced (Flake + Powder) (tonnes)

 

3,092

 

2,562

 

2,831

 

2,952

 

V2O5 produced (equivalent pounds)(1)

 

6,816,685

 

5,648,236

 

6,241,279

 

6,508,038

 

 

Q3 2020 Production Results

 

Total production from the Maracás Menchen Mine was 3,092 tonnes of V2O5, representing an increase of 5.0% over Q3 2019 and a new quarterly production record for the Company. Production in Q3 2020 was 3% above current nameplate production capacity and is largely attributable to greater operational stability and higher global recoveries achieved during the quarter. Production was 1,055 tonnes of V2O5 in July 2020, 1,100 tonnes in August 2020 and 937 tonnes in September 2020.

 

In Q3 2020, 287,969 tonnes of ore with an effective V2O5 grade(4) of 1.28% were mined compared to 267,257 tonnes in Q3 2019 with an effective V2O5 grade(4) of 1.52%. The Company also produced 104,921 tonnes of concentrate ore with an average V2O5 grade of 3.32% in Q3 2020 compared to 92,629 tonnes in Q3 2019 with an average V2O5 grade of 3.26%.

 

The Company achieved a new record global V2O5 recovery rate(2) of 84.2% in Q3 2020 representing an 8.0% increase over Q3 2019 (78.1%). This is primarily attributable to continuous improvement projects performed on the plant during the quarter with a focus on greater overall recoveries.

 

 

2020 Cash Cost Guidance Update

 

 

 

 

 

2020 Guidance

 

Revised 2020 Guidance

 

Cash operating costs excluding royalties(3)

 

US$

/lb

 

3.05 – 3.25

 

2.60 – 2.80

 

Total cash costs(3)

 

US$

/lb

 

3.45 – 3.65

 

3.20 – 3.40

 

 

Cost-efficient Nameplate Capacity Increase of 10% Postponed to Q1 2021

 

As a result of ongoing precautions related to the COVID-19 pandemic which limit the number of contractors permitted on site, the Company has postponed its kiln upgrades and cooler maintenance to Q1 2021. The Company’s planned nameplate capacity increase is expected to increase monthly production from 1,000 tonnes of V2O5 per month to 1,100 tonnes for a CAPEX of US$1.3 million. Largo does not expect this to affect production levels in Q1 2021.

 

About Largo Resources

 

Largo Resources is an industry preferred producer and supplier of vanadium for the global steel and high purity markets. Largo’s VPURE™ and VPURE+™ products are sourced from one of the world’s highest-grade vanadium deposits at the Maracás Menchen Mine located in Brazil. The Company’s common shares are principally listed on the Toronto Stock Exchange under the symbol “LGO”. For more information on Largo and VPURE™, please visit www.largoresources.com and www.largoVPURE.com.

 

For further information, please contact:

 

Alex Guthrie
Manager, Investor Relations and Communications
aguthrie@largoresources.com
Tel: +1 416-861-9797

 

Neither the Toronto Stock Exchange (nor its regulatory service provider) accepts responsibility for the adequacy or accuracy of this press release.

 

Forward-looking Information:

 

This press release contains forward-looking information under Canadian securities legislation, some of which may be considered “financial outlook” for the purposes of application Canadian securities legislation (“forward-looking statements”). Forward-looking information in this press release includes, but is not limited to, statements with respect to the timing and amount of estimated future production and sales; costs of future activities and operations; the extent of capital and operating expenditures; and the extent and overall impact of the COVID-19 pandemic in Brazil and globally. Forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. All information contained in this news release, other than statements of current and historical fact, is forward looking information. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Largo to be materially different from those expressed or implied by such forward-looking statements, including but not limited to those risks described in the annual information form of Largo and in its public documents filed on SEDAR from time to time. Forward-looking statements are based on the opinions and estimates of management as of the date such statements are made. Although management of Largo has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors

 

 

that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Largo does not undertake to update any forward-looking statements, except in accordance with applicable securities laws. Readers should also review the risks and uncertainties sections of Largo’s annual and interim MD&As which also apply.

 

(1)  Conversion of tonnes to pounds, 1 tonne = 2,204.62 pounds or lbs.

 

(2)  Global recovery is the product of crushing recovery, milling recovery, kiln recovery, leaching recovery and chemical plant recovery.

 

(3)  The cash operating costs per pound sold, cash operating costs excluding royalties per pound sold and total cash costs reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of the Company’s Management Discussion and Analysis for the three and six months ended June 30, 2020.

 

(4)  Effective grade represents the percentage of magnetic material mined multiplied by the percentage of V2O5 in the magnetic concentrate.

 

Exhibit 99.42

 

GRAPHIC

 

PRESS RELEASE

October 21, 2020

 

Largo Resources to Release Third Quarter 2020 Financial Results on
November 12, 2020

 

·                  Shareholder conference call with Paulo Misk, President and CEO, Ernest Cleave, CFO and Paul Vollant, Director of Sales and Trading will be conducted at 10:00 a.m. ET on Friday, November 13, 2020.

 

TORONTO — Largo Resources Ltd. (“Largo” or the “Company”) (TSX: LGO) (OTCQX: LGORF) will release its third quarter 2020 financial results on Thursday, November 12, 2020 after the close of market trading. Additionally, the Company will host a conference call to discuss its third quarter 2020 operating and financial results on Friday, November 13 at 10:00 a.m. ET.

 

Details of the conference call are listed below:

 

Date:

Friday, November 13, 2020

Time:

10:00 a.m. ET

Dial-in Number:

Local / International: +1 (416) 764-8688

 

North American Toll Free: (888) 390-0546

 

Brazil Toll Free: 08007621359

Conference ID:

63665793

Replay Number:

Local / International: + 1 (416) 764-8677

 

North American Toll Free: (888) 390-0541

 

Replay Passcode: 537676 #

Website:

To view press releases or any additional financial information, please visit the Investor Relations section of the Largo Resources website at: www.largoresources.com/investors

 

About Largo Resources

 

Largo Resources is an industry preferred producer and supplier of vanadium for the global steel and high purity markets. Largo’s VPURE™ and VPURE+™ products are sourced from one of the world’s highest-grade vanadium deposits at the Maracás Menchen Mine located in Brazil. The Company’s common shares are principally listed on the Toronto Stock Exchange under the symbol “LGO”. For more information on Largo and VPURE™, please visit www.largoresources.com and www.largoVPURE.com.

 

For further information, please contact:

 

Alex Guthrie
Manager, Investor Relations and Communications
info@largoresources.com
Tel: +1 416-861-9797

 

Exhibit 99.43

 

FORM 52-109F2

 

CERTIFICATION OF INTERIM

FILINGS FULL CERTIFICATE

 

I, Paulo Misk, Chief Executive Officer of LARGO RESOURCES LTD., certify the following:

 

1.                                      Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Largo Resources Ltd. (the “issuer”) for the interim period ended September 30, 2020.

 

2.                                      No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

 

3.                                      Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

 

4.                                      Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

 

5.                                      Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings

 

(a)                                 designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

 

(i)                                     material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

 

(ii)                                  information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

 

(b)                                 designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

 

5.1                               Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Internal Control — Integrated Framework (2013 COSO Framework) published by The Committee of Sponsoring Organizations of the Treadway Commission.

 

5.2                               ICFR — material weakness relating to design: N/A

 

5.3                               Limitation on scope of design: N/A

 

 

6.                                      Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on July 1, 2020 and ended on September 30, 2020 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

 

Date: November 12, 2020

 

 

 

 

 

/s/ “Paulo Misk”

 

Paulo Misk

 

Chief Executive Officer

 

 

2

Exhibit 99.44

 

FORM 52-109F2

 

CERTIFICATION OF INTERIM

FILINGS FULL CERTIFICATE

 

I, Ernest Cleave, Chief Financial Officer of LARGO RESOURCES LTD., certify the following:

 

1.                                      Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Largo Resources Ltd. (the “issuer”) for the interim period ended September 30, 2020.

 

2.                                      No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

 

3.                                      Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

 

4.                                      Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

 

5.                                      Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings

 

(a)                                 designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

 

(i)                                     material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

 

(ii)                                  information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

 

(b)                                 designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

 

5.1                               Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Internal Control — Integrated Framework (2013 COSO Framework) published by The Committee of Sponsoring Organizations of the Treadway Commission.

 

5.2                               ICFR—material weakness relating to design: N/A

 

5.3                               Limitation on scope of design: N/A

 

 

6.                                      Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on July 1, 2020 and ended on September 30, 2020 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

 

Date: November 12, 2020

 

 

 

 

 

/s/ “Ernest Cleave”

 

Ernest Cleave

 

Chief Financial Officer

 

 

2

Exhibit 99.45

 

GRAPHIC

 

PRESS RELEASE

November 12, 2020

 

Largo Resources Announces Solid Third Quarter 2020 Results Highlighted by its Successful Sales Strategy Implementation and Continued Low-cost Operations

 

Except as otherwise set out herein, all amounts expressed are in thousands of U.S. dollars, denominated by “$”

 

Q3 2020 Highlights

 

·                  Solid financial position: Cash at September 30, 2020 totaled $74.9 million

 

·                  Revenues of $27.5 million, an increase of 14% over Q3 2019

 

·                  Revenues per pound sold(7) of $5.37, a 34% increase over Q3 2019

 

·                  Net income of $2.6 million vs. a net loss of $6.0 million in Q3 2019

 

·                   Total sales exceeded production levels in August and September 2020 for the first time since commercial independence, highlighting successful implementation of the Company’s strategy

 

·                   Cash provided (used) before working capital items of $4.8 million vs. cash used in Q3 2019 of $3.8 million

 

·                  Record production of 3,092 tonnes (6.8 million pounds(1)) of V2O5, an increase of 5.0% over Q3 2019

 

·                   Record global V2O5 recovery rate(2)  of 84.2% in Q3 2020, an increase of 8.0% over Q3 2019

 

·                  Continued low-cost operations: Cash operating costs excluding royalties(3) of $3.14 per lb of V2O5, compared with $3.02 per lb in Q3 2019; Total cash costs(3) were $3.69 per lb in Q3 2020

 

Other Significant Highlights

 

·             2020 cash cost guidance reduced: Cash operating cost excluding royalties(3) guidance lowered to $2.60 — $2.80 / lb V2O5 from $3.05 — $3.25 / lb; Total cash cost(3) guidance lowered to $3.20 to $3.40 / lb V2O5 from 3.45 — $3.65/ lb

 

·             Postponing cost-efficient nameplate capacity increase to Q1 2021: Planned kiln upgrades and cooler maintenance that will increase Largo’s production capacity by 10% with a CAPEX of only $1.3 million are postponed to Q1 2021 due to COVID-19 restrictions

 

·             Focus on safe business continuity: On track to meet lower end of 2020 production guidance with strong production results expected in Q4 2020; 2020 sales guidance maintained

 

·            2020 drilling program update: Drilling was ramped up in Q3 2020 with 14,007 metres (80 holes) completed

 

 

TORONTO - Largo Resources Ltd. (“Largo” or the “Company”) (TSX: LGO) (OTCQX: LGORF) is pleased to announce its third quarter 2020 financial and operating results highlighted by net income of $2.6 million and revenues of $27.5 million from vanadium pentoxide (“V2O5”) equivalent sales of 2,320 tonnes. The Company achieved a new quarterly V2O5 production record of 3,092 tonnes (6.8 million lbs(1)) at the Maracás Menchen Mine in Q3 2020 and a new record global recovery rate(2) of 84.2%.

 

Paulo Misk, President and Chief Executive Officer for Largo, stated: “Our positive results in Q3 2020 reflect the notable dedication of the entire Largo team as we continue to advance our independent commercial sales strategy and deliver on our operational and sales targets. We are very pleased to report a profitable quarter in Q3 2020 with continued low cash operating costs excluding royalties(3) of $3.14 per lb and year-to-date cash operating costs excluding royalties(3) of $2.70 per lb. Additionally, our independent sales strategy has proven beneficial for the Company in Q3 2020 highlighted by an increase of 34% in revenues per lb(7) sold to $5.37 from $4.02 per lb sold in Q3 2019.” He continued: “Our liquidity position remains solid heading into the final stretch of 2020 and I am pleased to report that we expect to finish the year on a positive note both operationally and financially. 2020 has presented some challenges for Largo but I am very proud of the entire team who have been resilient during unprecedented times. Our integrated supply of vanadium from mine to customer remains one of the lowest costs and highest quality in the world. The future looks very bright for Largo as we expect an increase in vanadium consumption from rebar and steel applications due to new infrastructure spending and through the development of clean energy applications—both of which are aligned with our goal of contributing to a lower carbon future through the use of vanadium.”

 

A summary of the Company’s operational and financial performance in Q3 2020 is provided in the tables below.

 

Effective May 1, 2020, the Company’s Canadian and Irish entities have changed their functional currency to the U.S. dollar and the Company has changed its presentation currency from Canadian dollar to the U.S. dollar. Prior period comparative information is restated in U.S. dollars to reflect the change in presentation currency.

 

Financial

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 30,
2020

 

September 30,
2019

 

September 30,
2020

 

September 30,
2019

 

Revenues

 

$

27,474

 

$

24,131

 

$

77,733

 

$

79,299

 

Operating costs

 

(20,977

)

(23,673

)

(56,786

)

(70,271

)

Direct mine and production costs

 

(11,354

)

(16,691

)

(31,028

)

(48,058

)

Net income (loss) before tax

 

3,352

 

(6,852

)

1,700

 

(20,968

)

Income tax (expense) recovery

 

(421

)

724

 

(421

)(8)

 

 

Deferred income expense

 

(382

)

179

 

(1,399

)

(1,690

)

Net income (loss)

 

2,549

 

(5,949

)

(120

)

(22,666

)

Basic earnings (loss) per share

 

0.00

 

(0.01

)

(0.00

)

(0.04

)

Diluted earnings (loss) per share

 

0.00

 

(0.01

)

(0.00

)

(0.04

)

 

 

 

 

 

 

 

 

 

 

Cash provided (used) before non-cash working capital items

 

$

4,820

 

$

(3,809

)

$

4,526

 

$

7,888

 

Net cash (used in) provided by operating activities

 

382

 

6,376

 

(64,249

)

95,247

 

Net cash provided by (used in) financing activities

 

126

 

(21,510

)

27,643

 

(94,560

)

Net cash (used in) investing activities

 

(4,435

)

(11,896

)

(13,036

)

(32,251

)

Net change in cash

 

(3,320

)

(28,749

)

(52,604

)

(34,614

)

 

2

 

 

 

 

 

As at

 

 

 

September 30,
2020

 

December 31,
2019

 

Cash

 

$

74,895

 

127,499

 

Debt

 

24,788

 

—

 

Working capital(4)

 

84,671

 

78,380

 

 

Operational

 

Maracás Menchen Mine Production

 

Q3 2020

 

Q3 2019

 

Total Ore Mined (tonnes)

 

287,969

 

267,257

 

Ore Grade Mined - Effective Grade(5) (%)

 

1.28

 

1.52

 

 

 

 

 

 

 

Effective Grade of Ore Milled(5) (%)

 

1.26

 

1.44

 

Concentrate Produced (tonnes)

 

104,921

 

92,629

 

Grade of Concentrate (%)

 

3.32

 

3.26

 

Contained V2O5 (tonnes)

 

3,487

 

3,016

 

 

 

 

 

 

 

Crushing Recovery (%)

 

98.1

 

96.5

 

Milling Recovery (%)

 

96.5

 

97.0

 

Kiln Recovery (%)

 

92.5

 

88.8

 

Leaching Recovery (%)

 

99.7

 

97.2

 

Chemical Plant Recovery (%)

 

96.4

 

96.7

 

Global Recovery (%)(2)

 

84.2

 

78.1

 

 

 

 

 

 

 

V2O5 produced (Flake + Powder) (tonnes)

 

3,092

 

2,952

 

V2O5 produced (equivalent pounds)(1)

 

6,816,685

 

6,508,038

 

Cash operating costs per pound(3)

 

$

3.50

 

$

3.25

(6)

Cash operating costs excluding royalties(3) per pound

 

$

3.14

 

$

3.02

(6)

Total cash costs(3)

 

$

3.69

 

 

 

Revenues per pound sold (7)

 

$

5.37

 

$

4.02

 

 

Third Quarter 2020 Financial Performance

 

In Q3 2020, the Company recognized revenues of $27.5 million from sales of 2,320 tonnes of V2O5 equivalent, representing an increase of 14% in revenues over Q3 2019 ($24.1 million). Revenues per pound sold were $5.37 in Q3 2020 compared to $4.02 per pound sold in Q3 2019, representing an increase of 34%. Q3 2020 marked Largo’s first full quarter of independent sales and the Company delivered both VPURE™ and VPURE+™ products as well as ferrovanadium (“FeV”) powered by VPURE™ to customers in Brazil, North America, Europe and Asia. The Company’s total V2O5 equivalent sales in the nine months ended September 30, 2020 are 6,508 tonnes.

 

3

 

The Company recorded net income of $2.6 million in Q3 2020 following the recognition of an income tax expense of $0.4 million and a deferred income tax expense of $0.4 million. This compares to net loss of $6.0 million in Q3 2019 and is primarily due to an increase in revenues and decrease in operating costs.

 

Operating costs for Q3 2020 were $21.0 million compared to $23.7 million in Q3 2019 and include direct mine and production costs of $11.4 million ($16.7 million in Q3 2019), royalties of $1.6 million ($1.4 million in Q3 2019), product acquisition costs of $3.9 million, distribution costs of $0.9 million, inventory write-down of $2 thousand and depreciation and amortization of $3.3 million ($5.6 million in Q3 2019). The decrease in direct mine and production costs is primarily attributable to the decrease in V2O5 equivalent sold in Q3 2020.

 

Cash operating costs excluding royalties(3) in Q3 2020 were $3.14 per lb V2O5 sold compared to $3.02 in Q3 2019. The increase seen in Q3 2020 compared with Q3 2019 is largely due to a decrease in produced pounds of V2O5 sold as well as the incurrence of distribution costs in Q3 2020. In Q3 2020, the Company’s total cash costs(3) were $3.69 per lb. The Company’s total cash costs(3) measure excludes royalties, includes total professional, consulting and management fees and other general and administrative expenses and are calculated on total pounds of V2O5 sold.

 

In Q3 2020, cash provided before working capital items was $4.8 million compared to cash used in Q3 2019 of $3.8 million. Net cash provided by operating activities decreased from $6.4 million in Q3 2019 to $0.4 million in Q3 2020. This is primarily due to the change in accounts receivable of $4.6 million in Q3 2020 as the payment terms with the Company’s customers is greater than with its former off-take partner. A further factor is the change in inventory of $3.8 million in Q3 2020, which is a consequence of the increased time for the Company to deliver its products and recognize sales. This was offset by the change in deferred revenue of $6.6 million in Q3 2020 as cash payments were received for sales not yet recognized.

 

The Company’s trade payables balance at September 30, 2020 with its former off-take partner was $0.09 million. This is attributable to the re-measurement of trade receivables / payables for V2O5 sold in the period to April 30, 2020 and is the last such re-measurement.

 

Third Quarter 2020 Operational Performance

 

Q3 2020 production of 3,092 tonnes of V2O5 was a new quarterly production record for the Company, being 5% higher than Q3 2019 and 3% higher than the previous record of 3,011 tonnes in Q4 2019. V2O5 production in July 2020 was 1,055 tonnes, with 1,100 tonnes produced in August 2020 and 937 tonnes produced in September 2020. Operational stability and an increase in the global recovery(2) drove the Q3 2020 production performance. Subsequent to Q3 2020, production in October 2020 was 1,119 tonnes of V2O5.

 

The global recovery(2) record of 84.2% achieved in Q3 2020 was 8% higher than the 78.1% achieved in Q3 2019 and 4% higher than the 80.8% achieved in Q2 2020. This is primarily due to the completion of continuous improvement projects in the plant that focused on recovery levels. This was highlighted by the performance of the kiln and leaching areas in Q3 2020, with record quarterly recovery levels of 92.5% and 99.7%, respectively, being achieved. The global recovery(2) in July 2020 was 86.0%, with 84.0% achieved in August and 82.1% achieved in September.

 

In Q3 2020, 287,969 tonnes of ore were mined with an effective grade(5) of 1.28% of V2O5. The ore mined in Q3 2020

 

4

 

was 8% higher than in Q3 2019 and 12% higher than in Q2 2020, which was impacted by the COVID-19 restrictions put in place as well as operational restrictions due to the rainy season. The Company produced 104,921 tonnes of concentrate with an effective grade(5) of 3.32%. The operational performance in Q3 2020 has remained in-line with the Company’s plans despite the COVID-19 restrictions put in place.

 

The Company’s planned upgrades to the kiln and improvements in the cooler to increase nameplate capacity to 1,100 tonnes of V2O5 per month are now scheduled for Q1 2021 as a result of precautionary measures taken by the Company in light of the COVID-19 pandemic.

 

Successful Sales Strategy Implementation — Strong Sales Results in August and September 2020

 

The Company progresses its sales strategy for 2020 is in line with expectations, highlighted by V2O5 equivalent sales of 1,062 tonnes in August 2020 and 1,060 tonnes in September 2020. From May to July 2020, the Company successfully built the necessary inventories to fill its sales pipeline and meet customer commitments as planned. As a result of Largo’s new commercial independence and sales flexibility, the Company increased its sales in China to take advantage of higher prices and greater overall demand in Q3 2020. This further highlights the positive effect of the Company’s commercial strategy on its reputation, visibility and financial performance. Delivery times to Asia have increased in Q3 2020 due to logistical constraints related to the COVID-19 pandemic. The Company continues to actively manage this process to provide premium products and service to its customers and remains confident in its ability to deliver on its 2020 sales guidance of 9,500 to 10,000 tonnes of V2O5.

 

For Q3 2020, the average price per lb of V2O5 in Europe was approximately $5.33, compared with approximately $7.16 for Q3 2019. During Q3 2020, the average price per lb of V2O5 in Europe increased by 1%, ending the period with an average price of approximately $5.35, compared with approximately $5.30 at June 30, 2020. In Q3 2020, the average price per lb of V2O5 in China was approximately $5.90 on a cost, insurance, and freight (“CIF”) equivalent basis. In Q3 2020, China continued to be the driver of global vanadium demand from increased infrastructure spending and the development of green technology applications. Going forward, Largo expects additional global vanadium demand growth as a result of recently announced stimulus packages and a focus on carbon footprint reduction. These significant, long-term trends are forecast to increase the consumption of vanadium in rebar, high-quality steel applications and through new vanadium redox flow battery deployments around the world.

 

Exploration Drilling Program Ramped Up in Q3 2020

 

After delays experienced in early 2020 due to the COVID-19 pandemic, exploration drilling was ramped up and 14,007 metres of drilling (80 holes) was completed in Q3 2020. Drilling focused on definition drilling at Novo Amparo Norte, Gulcari A Norte and additional drilling at the Campbell Pit. In early October 2020, drills were moved to the São José and Novo Amparo deposits for further expansion and resource definition drilling to gain a greater level of understanding of these deposits. As of November 12, 2020, the Company has drilled 19,465 metres (109 holes).

 

The Company does not anticipate any further disruptions to the overall 2020 exploration plan. The São José and Novo Amparo targets, as well as depth extension drilling at the Campbell Pit, will be the focus of exploration activities in Q4 2020.

 

5

 

Conference Call

 

Largo Resources’ management will host a conference call on Friday, November 13, 2020, at 10:00 a.m. ET, to discuss both operational and financial results for the third quarter of 2020.

 

Conference Call Details:

 

Date:

 

Friday, November 13, 2020

 

 

 

Time:

 

10:00 a.m. ET

 

 

 

Dial-in Number:

 

Local / International: +1 (416) 764-8688

 

 

North American Toll Free: (888) 390-0546

 

 

Brazil Toll Free: 08007621359

 

 

 

Conference ID:

 

63665793

 

 

 

Replay Number:

 

Local / International: + 1 (416) 764-8677

 

 

North American Toll Free: (888) 390-0541

 

 

Replay Passcode: 537676 #

 

 

 

Website:

 

To view press releases or any additional financial information, please visit the Investor Relations section of the Largo Resources website at: www.largoresources.com/investors

 

A playback recording will be available on the Company’s website for a period of 60-days following the conference call.

 

The information provided within this release should be read in conjunction with Largo’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2020 and 2019 and its management’s discussion and analysis for the three and nine months ended September 30, 2020, which are available on our website at www.largoresources.com and on SEDAR.

 

About Largo Resources

 

Largo Resources is an industry preferred producer and supplier of vanadium for the global steel and high purity markets. Largo’s VPURE™ and VPURE+™ products are sourced from one of the world’s highest-grade vanadium deposits at the Maracás Menchen Mine located in Brazil. The Company’s common shares are principally listed on the Toronto Stock Exchange under the symbol “LGO”. For more information on Largo and VPURE™, please visit www.largoresources.com and www.largoVPURE.com.

 

Neither the Toronto Stock Exchange (nor its regulatory service provider) accepts responsibility for the adequacy or accuracy of this release.

 

CONTACT INFORMATION:

 

For more information, please contact:

 

Alex Guthrie
Senior Manager, External Relations
info@largoresources.com
416-861-9797

 

6

 

Forward Looking Information

 

This press release contains forward-looking information under Canadian securities legislation, some of which may be considered “financial outlook” for the purposes of application Canadian securities legislation (“forward-looking statements”). Forward-looking information in this press release includes, but is not limited to, statements with respect to the timing and amount of estimated future production and sales; costs of future activities and operations; the extent of capital and operating expenditures; and the extent and overall impact of the COVID-19 pandemic in Brazil and globally. Forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. All information contained in this news release, other than statements of current and historical fact, is forward looking information. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Largo to be materially different from those expressed or implied by such forward-looking statements, including but not limited to those risks described in the annual information form of Largo and in its public documents filed on SEDAR from time to time. Forward-looking statements are based on the opinions and estimates of management as of the date such statements are made. Although management of Largo has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Largo does not undertake to update any forward-looking statements, except in accordance with applicable securities laws. Readers should also review the risks and uncertainties sections of Largo’s annual and interim MD&As which also apply.

 

Trademarks are owned by Largo Resources Ltd.

 

Non-GAAP(8) Measures

 

The Company uses certain non-GAAP financial performance measures in its press release and Management’s Discussion and Analysis for the three and nine months ended September 30, 2020, which are described in the following section.

 

Revenues Per Pound

 

The Company’s press release refers to revenues per pound sold, a non-GAAP performance measure that is used to provide investors with information about a key measure used by management to monitor performance of the Company.

 

This measure, along with cash operating costs and total cash costs, is considered to be one of the key indicators of the Company’s ability to generate operating earnings and cash flow from its Maracás Menchen Mine and sales activities. This revenues per pound measure does not have any standardized meaning prescribed by IFRS and differs from measures determined in accordance with IFRS. This measure is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. This measure is not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.

 

The following table provides a reconciliation of this measure per pound sold to revenues as per the Q3 2020 unaudited condensed interim consolidated financial statements.

 

7

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 30,
2020

 

September 30,
2019

 

September 30,
2020

 

September 30,
2019

 

Revenues(i)

 

$

27,474

 

$

24,131

 

$

77,733

 

$

79,299

 

V2O5 equivalent sold (000s lb)

 

5,115

 

5,997

 

14,348

 

16,094

 

Revenues per pound sold ($/lb)

 

$

5.37

 

$

4.02

 

$

5.42

 

$

4.93

 

 

(i)            As per note 21 in the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2020 and 2019.

 

Cash Operating Costs Per Pound

 

The Company’s press release refers to cash operating costs per pound, a non-GAAP performance measure, in order to provide investors with information about a key measure used by management to monitor performance. This information is used to assess how well the Maracás Menchen Mine is performing compared to plan and prior periods, and also to assess its overall effectiveness and efficiency.

 

Cash operating costs includes mine site operating costs such as mining costs, plant and maintenance costs, sustainability costs, mine and plant administration costs, royalties, distribution costs and sales, general and administrative costs (all for the mine properties segment), but excludes depreciation and amortization, share-based payments, foreign exchange gains or losses, commissions, reclamation, capital expenditures and exploration and evaluation costs. Operating costs not attributable to the mine properties segment are also excluded, including product acquisition costs and inventory write-downs. These costs are then divided by the pounds of vanadium sold that were produced by the Maracás Menchen Mine to arrive at the cash operating costs per pound. Prior to 2020, these costs were divided by the pounds of production from the Maracás Menchen Mine, rather than pounds sold. These periods have been recalculated using produced pounds sold in the following table. This measure differs to the new total cash costs non-GAAP measure the Company will use to measure its overall performance starting in 2020 (see later in this section).

 

These measures, along with revenues, are considered to be one of the key indicators of the Company’s ability to generate operating earnings and cash flow from its Maracás Menchen Mine. These cash operating costs measures do not have any standardized meaning prescribed by IFRS and differ from measures determined in accordance with IFRS. These measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These measures are not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.

 

In addition, the Company’s press release refers to cash operating costs excluding royalties. This is a non-GAAP performance measure and is calculated as cash operating costs less royalties, as disclosed in the following table.

 

The following table provides a reconciliation of cash operating costs per pound for the Maracás Menchen Mine to operating costs as per the Q3 2020 unaudited condensed interim consolidated financial statements.

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 30,
2020

 

September 30,
2019

 

September 30,
2020

 

September 30,
2019

 

Operating costs(i)

 

$

20,977

 

$

23,673

 

$

56,786

 

$

70,271

 

Professional, consulting and management fees(ii)

 

853

 

1,321

 

2,123

 

3,468

 

Other general and administrative expenses(ii)

 

390

 

111

 

1,155

 

602

 

Less: product acquisition costs(i)

 

(3,877

)

—

 

(7,180

)

—

 

Less: inventory write-down(iii)

 

—

 

—

 

(317

)

—

 

Less: depreciation and amortization expense(i)

 

(3,264

)

(5,601

)

(11,745

)

(17,762

)

Cash operating costs

 

15,079

 

19,504

 

40,822

 

56,579

 

Less: royalties(i)

 

(1,552

)

(1,381

)

(5,149

)

(4,451

)

Cash operating costs excluding royalties

 

13,527

 

18,123

 

35,673

 

52,128

 

Produced V2O5 sold (000s lb) (iv)

 

4,310

 

5,997

 

13,195

 

16,094

 

Cash operating costs per pound ($/lb)(iv)

 

$

3.50

 

$

3.25

 

$

3.09

 

$

3.52

 

Cash operating costs excluding royalties per pound ($/lb) (iv)

 

$

3.14

 

$

3.02

 

$

2.70

 

$

3.24

 

 

8

 

(i)            As per note 22 in the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2020 and 2019.

 

(ii)        As per the Mine properties segment in note 18 in the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2020 and 2019.

 

(iii)    As per note 7 in the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2020 and 2019.

 

(iv)      Cash operating costs per pound and cash operating costs excluding royalties per pound for Q3 2019 were previously calculated and presented on a pounds produced basis (V2O5 produced (000s lb) = 6,508; V2O5 sold (000s lb) = 5,997). These measures have been calculated and presented on a pounds sold basis in this MD&A.

 

Total Cash Costs

 

The Company’s press release refers to total cash costs, a non-GAAP performance measure, in order to provide investors with information about a key measure used by management to monitor performance. This information is used to assess how well the Company is performing at producing and selling vanadium products compared to plan and prior periods, and also to assess its overall effectiveness and efficiency.

 

Total cash costs are a non-GAAP performance measure that includes all operating costs, sales and distribution costs and the Company’s total professional, consulting and management fees and other general and administrative expenses. Total cash costs exclude royalties, depreciation and amortization, share-based payments, foreign exchange gains or losses, commissions, reclamation costs, exploration and evaluation costs and capital expenditures. These costs are then divided by the total pounds of vanadium sold by the Company to arrive at total cash costs.

 

This measure differs from cash operating costs per pound in that it includes all operating costs, sales and distribution costs, professional, consulting and management fees and other general and administrative expenses, rather than just those from the Mine properties segment, and is calculated on total V2O5 equivalent pounds sold rather than pounds sold that were produced by the Maracás Menchen Mine. The Company believes this will be a more accurate reflection of its all-in unit costs.

 

This total cash costs measure does not have any standardized meaning prescribed by IFRS and differs from measures determined in accordance with IFRS. This measure is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. This measure is not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.

 

The following table provides a reconciliation of total cash costs to operating costs as per the Q3 2020 unaudited condensed interim consolidated financial statements.

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 30,
2020

 

September 30,
2020

 

Operating costs(i)

 

$

20,977

 

$

56,786

 

Professional, consulting and management fees(ii)

 

2,094

 

5,026

 

Other general and administrative expenses(ii)

 

643

 

2,302

 

Less: depreciation and amortization expense(i)

 

(3,264

)

(11,745

)

Less: royalties(1)

 

(1,552

)

(5,149

)

 

 

$

18,898

 

$

47,220

 

V2O5 equivalent sold (000s lb)

 

5,115

 

14,348

 

Total cash costs ($/lb)

 

$

3.69

 

$

3.29

 

 

(i)            As per note 22 in the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2020 and 2019.

 

(ii)        As per the condensed interim consolidated statement of income (loss) and comprehensive income (loss) in in the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2020 and 2019.

 

(1)  Conversion of tonnes to pounds, 1 tonne = 2,204.62 pounds or lbs.

 

(2)  Global recovery is the product of crushing recovery, milling recovery, kiln recovery, leaching recovery and chemical plant recovery.

 

(3)  The cash operating costs per pound sold, cash operating costs excluding royalties per pound sold and total cash costs reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this press release.

 

(4)  Defined as current assets less current liabilities per the consolidated statements of financial position.

 

(5)  Effective grade represents the percentage of magnetic material mined multiplied by the percentage of V2O5 in the magnetic concentrate.

 

(6)  The cash operating costs per pound and cash operating costs per pound excluding royalties in Q3 2019 are per pounds produced and are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of the Company’s management discussion and analysis for the three and nine months ended September 30, 2019.

 

(7)  Revenues per pound sold is calculated based on the quantity of V2O5 sold during the stated period. Refer to the “Non-GAAP Measures” section of this press release.

 

(8)  GAAP — Generally Accepted Accounting Principles.

 

9

Exhibit 99.46

 

GRAPHIC

 

PRESS RELEASE

December 8, 2020

 

Largo Resources Launches Largo Clean Energy; Creating a Leading, Vertically Integrated and Sustainable Renewable Energy Storage Provider

 

·             Launch of Largo Clean Energy creates an industry-leading, vertically integrated vanadium redox flow battery (“VRFB”) business to provide clean energy storage systems to the fast-growing, long-duration renewable energy storage market

 

·             Acquisition of 12 patent families previously owned by VionX Energy Corp. (“VionX Energy”) with coverage in key jurisdictions to enable Largo Clean Energy to deploy VionX Energy’s battery systems under Largo Clean Energy’s VCHARGE± branding

 

·             Onboarding of core technical team members previously employed by VionX Energy with decades of VRFB expertise

 

·             Over US$150 million of investment by VionX Energy in commercially proven VRFB technology and operational optimizations

 

·             VCHARGE± System: Combination of patented VRFB electrolyte processing technology, utilization of industry-leading flow battery stack technology and supply of Largo’s high purity vanadium required in the manufacturing of vanadium electrolyte will result in unparalleled competitive advantages

 

·             Provides Largo Resources with additional commercial and growth opportunities for its high purity vanadium products at attractive overall economics

 

·             Aligned with Largo Resources’ goal of contributing to a lower carbon future through the advancement of renewable energy storage deployments worldwide

 

·             Opportunity to significantly increase additional shareholder value

 

·             Webcast and conference call to discuss Largo Clean Energy and VCHARGE± technology transaction: Wednesday, December 9, 2020 at 10:00 a.m. ET

 

TORONTO — Largo Resources Ltd. (“Largo” or the “Company”) (TSX: LGO) (OTCQX: LGORF) is pleased to announce the launch of Largo Clean Energy Corp. (“Largo Clean Energy”), a newly formed company in Delaware (U.S.) whose aim will be to provide safe, long-duration vanadium redox flow battery systems for the fast-growing global renewable energy storage market. Largo Clean Energy has acquired superior VRFB technology that was previously owned by VionX Energy, a company that had been involved in the renewable energy storage market since 2002.

 

Paulo Misk, President and Chief Executive Officer for Largo, stated: “The acquisition of patented VRFB electrolyte processing technology along with the utilization of industry-leading flow battery stack design and supply of Largo’s reliable, high purity vanadium has culminated in the formation of a uniquely positioned renewable energy storage business. We have also hired key team members previously employed by VionX Energy who we believe have developed one of the most advanced VRFB technologies in the world and when combined with Largo Resources’ proven operational and commercial capabilities, will result in immediate synergies and unparalleled competitive advantages. We are very pleased to welcome this new team into our organization and following the launch of Largo Clean Energy, we expect to drive new VRFB adoption worldwide and capture greater market share of the rapidly

 

 

growing renewable energy storage sector. This forward-thinking approach also provides new and existing investors with a rare opportunity to capture value from a vertically integrated renewable energy storage investment with a focus on reducing carbon emissions worldwide.” He continued: “The patented VRFB technology and proprietary vanadium electrolyte processing system can deliver cost-competitive performance over a 20+ year life cycle with nominal degradation. In general, the VRFB is intrinsically safe with no fire risk from thermal runaway. Additionally, the contained vanadium electrolyte can be recycled for reuse in other VRFB installments at the end of the battery life. We are confident that these essential attributes make VRFB applications one of the safest and most sustainable options offered in the renewable energy storage market.”

 

He concluded: “Looking ahead, we are very excited to begin working with this advanced VRFB technology to capitalize on new renewable energy storage opportunities around the world. Largo’s revenues will continue to be largely driven by sales in the global steel industry and high purity aerospace and chemical markets—but as vanadium demand from global VRFB deployments expands in the coming years, we expect significant growth in the VRFB sector. The launch of Largo Clean Energy also provides Largo with additional flexibility to deploy more of its high purity vanadium production into energy storage products. Our goal is to continue contributing to a lower carbon future through the supply of our exceptionally high-quality vanadium products and through the deployment of Largo Clean Energy’s VCHARGE± systems.”

 

Largo Clean Energy — A Leading, Vertically Integrated Renewable Energy Storage Provider

 

The launch of Largo Clean Energy creates a vertically integrated energy storage provider for the growing renewable energy storage market. Global energy storage capacity is estimated to grow at a compound annual growth rate (“CAGR”) of 31%, recording over 741 gigawatt-hours (“GWh”) of cumulative capacity by 2030(1). The VRFB has emerged as a preferred renewable energy storage system for industrial and commercial microgrids, renewables integration, EV charging and grid applications. Through the combination of Largo’s unrivalled high purity vanadium products and today’s launch of Largo Clean Energy’s VRFB business, the Company is confident that it is well positioned to capture a significant portion of future renewable energy storage demand going forward.

 

Solving a Fundamental Vanadium Supply Problem Associated with VRFB Deployments

 

The VRFB is well-known for its technical and economic merits, but a fundamental issue that plagues most VRFB deployment projects is the secure and reliable supply of high purity vanadium. We believe that the launch of Largo Clean Energy helps to solve this problem by combining industry leading VRFB technology with Largo’s world class supply of high purity vanadium. Additionally, Largo’s cost-efficient expansion plans are expected to support the anticipated future demand of Largo Clean Energy’s VCHARGE± deployments.

 

Flexible Use of Largo’s High Purity Vanadium Products

 

We believe the formation of Largo Clean Energy leverages Largo’s unique position as one of the world’s highest-quality vanadium producers. In building a VRFB business, Largo is moving downstream in order to diversify its product and customer base, and increase its flexibility in any vanadium price environment.

 

VCHARGE± System: Advanced VRFB Technology with Unrivaled Performance

 

Largo Clean Energy will utilize the patented flow battery stack technology and proprietary vanadium electrolyte processing technology it now has at its disposal to further develop and deploy its VCHARGE± battery systems with a view of providing safe and continuous energy storage over a 20+ year life cycle with nominal degradation.

 

 

·                  The VCHARGE± battery system can be comprised of 4, 6, 8, 10 and 20 megawatt-hour (“MWh”) high-quality, modular energy storage options;

 

·                  Stack Power Density Unmatched: The VCHARGE± battery system is based on a proprietary vanadium electrolyte processing system combined with patented flow battery stack technology, allowing for 3 times higher power density than most other competitors;

 

·                  Cost-Competitiveness Advantage: The VCHARGE± battery system can deliver unrivaled Levelized Cost of Storage at discharge durations greater than 4 hours due to low capital and operating costs, and from a product life of over 20+ years with almost no performance degradation;

 

·                  One of the Safest Battery Solutions: The VCHARGE± battery system technology has been proven safe for use in urban applications in proximity to adjacent structures and densely populated areas due to its inherent non-flammability;

 

·                  Sustainability: Electrolyte contained within a VRFB has a 100% depth of discharge without any damage to the battery system. There is also the ability to re-use vanadium electrolyte at the end of the battery’s life which results in a more sustainable battery option as compared with competitors.

 

·                  Disruptive and Exclusive Battery IP: Largo Clean Energy has acquired the battery technology developed by VionX Energy which provides a competitive advantage;

 

·                  Proven Durability: The VCHARGE± product durability has been proven and validation of commercial design has been completed;

 

·                  Long-life: The VCHARGE± battery system will employ a modular architecture based on 1 megawatt (“MW”) power and 2 MWh energy building blocks that have been engineered to meet grid reliability standards and have undergone significant durability testing demonstrating up to 40 years of stack life.

 

Transaction Summary — Key Terms

 

Largo Clean Energy entered into an asset purchase agreement dated effective November 25, 2020 (the “Purchase Agreement”) pursuant to which it has now acquired certain assets of VionX Energy, including 12 patent families (the “Assets”) out of an assignment for the benefit of creditors under Massachusetts law. Closing of the purchase of the Assets was conditional upon Largo Clean Energy entering into the License Agreement (as defined below) which occurred today. The Assets were acquired for deemed net consideration equal to US$3,862,000 that was satisfied through the issuance of 2,518,453 common shares of Largo (at a deemed price per common shares of CAD$1.035, being the 5-day VWAP prior to the execution of the Purchase Agreement) and 3,622,007 share purchase warrants of Largo, which have an exercise price of CAD$1.30 and a term of five years. In connection with the transaction, Largo Clean Energy has also entered into a non-exclusive license agreement (the “License Agreement”) with Raytheon Technologies Corporation in respect of certain technology used by Largo Clean Energy.

 

Vanadium Redox Flow Batteries: Critical to Harnessing Clean Energy Generation

 

Largo believes the VRFB stands out above other battery contenders as being most ideally suited for large-scale utility, commercial and industrial renewable energy storage applications. The VRFB contains a vanadium electrolyte liquid solution that stores and releases large amounts of energy—and in most cases simultaneously—over long periods of time. Unlike a conventional battery, a VRFB uses a vanadium electrolyte to store energy in separated storage tanks, not in the power cell of the battery. During operation these electrolytes are pumped through a stack of power cells, or membranes, where an electrochemical reaction takes place and electricity is produced.

 

The VRFB’s strengths lie within its longevity, lack of degradation in performance over time (even after many thousands of cycles), non-flammability, 100% depth of discharge without any damage to the battery system and the ability to re-use the vanadium electrolyte at the end of the battery’s life. The electrolyte solution employed in

 

 

the VRFB is non-volatile — it is neither flammable, nor explosive as a result of its high water content and has very little, or no self-discharge current, which offers a very high degree of operational safety compared to other battery energy storage systems. This inherent non-flammability of the water-based electrolyte used in VRFBs makes them ideal for deployment in densely populated areas, airports, schools and wooded areas where mitigating the safety risk caused by fire and smoke is paramount.

 

Suitable for both grid and decentralized energy applications, the VRFB is one of the preferred battery energy storage technologies that provides an effective solution to address the challenges associated with grid modernization and stabilization, as well as renewable energy integration. VRFBs can also be employed in utility-scale energy storage projects, micro-grids, renewable energy generation integration, grid smoothing, backup power and in remote and off-grid power applications.

 

To learn more about vanadium redox flow batteries and the growing global energy storage market, please visit the About Vanadium section of our website at www.largoresources.com.

 

Webcast and Conference Call Details

 

Largo Resources’ management will host a webcast and conference call on Wednesday, December 9, 2020, at 10:00 a.m. ET, to discuss the Largo Clean Energy and VCHARGE± battery technology transaction highlights.

 

Conference Call Details:

 

Date:

 

December 9, 2020

Time:

 

10:00 a.m. ET

Webcast Link

 

https://produceredition.webcasts.com/starthere.jsp?ei=1412837&tp_key=2d9e303880

Dial-in Number:

 

Local / International: +1 (416) 764-8688

 

 

North American Toll Free: (888) 390-0546

 

 

Brazil Toll Free:  08007621359

Conference ID:

 

15966189

Website:

 

To view press releases or any additional financial information, please visit our Investor Relations section of the Largo Resources website at:  www.largoresources.com/investors

 

About Largo Clean Energy

 

Largo Clean Energy aims to become a leading supplier of safe, durable, long-duration grid-scale vanadium redox flow batteries (VRFB) for the fast-growing global renewable energy storage market. Our VCHARGE± battery systems use patented battery technology and proprietary vanadium electrolyte processing to provide customers with a fully integrated and cost-competitive renewable energy storage system comprised of power conditioning, system control and thermal management subsystems. Our VCHARGE± battery systems are designed to operate at 3 times higher power density than most other competitors and have been proven non-flammable and safe. The VCHARGE± battery system also offers a unique, long-duration discharge of up to 10 hours at full rated power delivering unmatched performance over a 20+ year life cycle with no degradation. For more information, please visit www.largocleanenergy.com.

 

About Largo Resources

 

Largo Resources is a leading, vertically integrated producer and supplier of high-quality vanadium. Largo can service multiple vanadium market applications through the supply of its unrivaled VPURE™ and VPURE+™ products, which are sourced from one of the world’s highest-grade vanadium deposits at the Maracás Menchen

 

 

Mine located in Brazil. Largo is also focused on the advancement of renewable energy storage solutions through Largo Clean Energy and its world-class VCHARGE± vanadium redox flow battery systems. The Company’s common shares are principally listed on the Toronto Stock Exchange under the symbol “LGO”.

 

For more information on Largo and VPURE™, please visit www.largoresources.com and www.largoVPURE.com.

 

For additional information on Largo Clean Energy, please visit www.largocleanenergy.com.

 

###

 

For further information, please contact:

 

Alex Guthrie
Senior Manager, External Relations
aguthrie@largoresources.com
Tel: +1 416-861-9797

 

Neither the Toronto Stock Exchange (nor its regulatory service provider) accepts responsibility for the adequacy or accuracy of this press release.

 

Forward-looking Information:

 

This press release contains forward-looking information under Canadian securities legislation, some of which may be considered “financial outlook” for the purposes of application Canadian securities legislation (“forward-looking statements”). Forward-looking information in this press release includes, but is not limited to, statements with respect to our ability to build, finance and operate a VRFB business, our ability to protect and develop our technology, our ability to maintain  our IP, our ability to market and sell our VCHARGE± battery system on specification and at a competitive price, our ability to secure the required production resources to build our VCHARGE± battery system, and the adoption of VFRB technology generally in the market. Forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. All information contained in this news release, other than statements of current and historical fact, is forward looking information. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of Largo or Largo Clean Energy to be materially different from those expressed or implied by such forward-looking statements, including but not limited to those risks described in the annual information form of Largo and in its public documents filed on SEDAR from time to time. Forward-looking statements are based on the opinions and estimates of management as of the date such statements are made. Although management of Largo has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Largo does not undertake to update any forward-looking statements, except in accordance with applicable securities laws. Readers should also review the risks and uncertainties sections of Largo’s annual and interim MD&As which also apply.

 

(1) Wood Mackenzie, Global energy storage outlook: H2 2020, September 30, 2020; https://www.woodmac.com/press-releases/global-energy-storage-capacity-to-grow-at-cagr-of-31-to-2030/

 

Exhibit 99.47

 

GRAPHIC

 

PRESS RELEASE

December 8, 2020

 

Largo Resources Announces Correction to December 8, 2020 Press Release

 

TORONTO — Largo Resources Ltd. (“Largo” or the “Company”) (TSX: LGO) (OTCQX: LGORF) announces a correction its press release dated December 8, 2020 regarding the warrant exercise price issued in connection with the asset purchase agreement dated effective November 25, 2020 (the “Purchase Agreement”) pursuant to which it has now acquired certain assets of VionX Energy, including 12 patent families (the “Assets”) out of an assignment for the benefit of creditors under Massachusetts law.

 

The Assets were acquired for deemed net consideration equal to US$3,862,000 that was satisfied through the issuance of 2,518,453 common shares of Largo (at a deemed price per common shares of CAD$1.035, being the 5-day VWAP prior to the execution of the Purchase Agreement) and 3,622,007 share purchase warrants of Largo, which have an exercise price of CAD$1.30 and a term of five years.

 

About Largo Resources

 

Largo Resources is a leading, vertically integrated producer and supplier of high-quality vanadium. Largo can service multiple vanadium market applications through the supply of its unrivaled VPURE™ and VPURE+™ products, which are sourced from one of the world’s highest-grade vanadium deposits at the Maracás Menchen Mine located in Brazil. Largo is also focused on the advancement of renewable energy storage solutions through Largo Clean Energy and its world-class VCHARGE± vanadium redox flow battery systems. The Company’s common shares are principally listed on the Toronto Stock Exchange under the symbol “LGO”.

 

For further information, please contact:

 

Alex Guthrie
Manager, Investor Relations and Communications
info@largoresources.com
Tel: +1 416-861-9797

 

Neither the Toronto Stock Exchange (nor its regulatory service provider) accepts responsibility for the adequacy or accuracy of this press release.

 

Exhibit 99.48

 

For dissemination in Canada and over Canadian news services only

 

Press Release

 

For Immediate Release

 

ARCF I Completes Distribution in Kind of Largo Shares

 

Toronto, Ontario — December 17, 2020 — Arias Resource Capital Fund L.P. (“ARCF I”) announced that it made a distribution in kind of an aggregate of 24,065,457 common shares (“Common Shares”) of Largo Resources Ltd. (“Largo”) from ARCF I to its underlying limited partners (the “Distribution in Kind”). These Common Shares include 10,488,564 Common Shares received on the cashless exercise of 13,156,707 Common Share purchase warrants (“Warrants”). The Common Shares distributed pursuant to the Distribution in Kind are subject to a hold period of four months and one day.

 

J. Alberto Arias, Director of Arias Resource Capital GP Ltd, the General Partner to ARCF I, said “We are very proud to have been able to distribute our ARCF I shares in Largo to its limited partners. Our fund investment was instrumental in the transformation of Largo from a small capitalization, pre-development project to one of the world’s most competitive vanadium companies, which is entering into the energy storage industry for cleantech renewable energy applications, as Largo evolves beyond the mining sector.”

 

Following the Distribution in Kind to its underlying limited partners, ARCF I no longer holds any Largo securities. Arias Resource Capital Fund II L.P. (“ARCF II”) and Arias Resource Capital Fund II (Mexico) L.P. (“ARCF II Mexico”, and together with ARCF II, the “ARCF II Funds”), own, in the aggregate, 233,300,763 Common Shares and 59,508,355 Warrants. J. Alberto Arias has been granted for service on the Largo Board of Directors a total of 440,000 vested options to acquire Common Shares (“Options”) and holds 98,000 Common Shares. Giving effect to the Distribution in Kind and assuming the exercise in full of the Warrants by the ARCF II Funds and the vested Options by J. Alberto Arias, the Common Shares held by the ARCF II Funds and J. Alberto Arias, collectively, would represent approximately 47.00% of the total outstanding Common Shares of Largo, on a partially diluted basis, representing a decrease of approximately 3.86%, as summarized below:

 

 

 

Common Shares issuable on exercise or
conversion

 

 

 

Common Shares Owned

 

Warrant Shares

 

Option Shares

 

Partially Diluted Total

 

% Change in
Ownership (1)

 

J. Alberto Arias

 

98,000(0.02

)%

—

 

440,000

 

538,000(0.09

)%

(0.00

)%

ARCF I

 

—

 

—

 

—

 

—

 

(3.86

)%

ARCF II

 

220,681,896(39.13

)%

56,313,298

 

—

 

276,995,194(44.40

)%

(0.00

)%

ARCF II (Mexico)

 

12,520,867(2.22

)%

3,195,057

 

—

 

15,715,924(2.52

)%

(0.00

)%

TOTAL:

 

233,300,763(41.37

)%

59,508,355

 

440,000

 

293,249,118(47.00

)%

(3.86

)%

 

(1)                                 Represents change in ownership as a result of the Distribution in Kind on a partially diluted basis

 

The ARCF I and ARCF II Funds (the “ARC Funds”) are managed by Arias Resource Capital Management LP (the “Manager”). The respective general partner of each of the ARC Funds retains the power to make investment and voting decisions in respect of the Largo securities beneficially owned by the ARC Funds. J. Alberto Arias is the sole director of each of the general partners of the ARC Funds and indirectly controls the Manager. As such, Mr. Arias may be deemed to share voting and dispositive power with respect to the Largo securities beneficially owned by the ARC II Funds, but he disclaims any beneficial ownership of any such securities, except to the extent of his pecuniary interest therein.

 

ARCF I made the Distribution in Kind in accordance with its confidential fund documents. The ARCF II Funds may, from time to time, acquire additional securities of Largo and/or dispose of such securities as they may deem appropriate. The ARCF II Funds currently have no other immediate plans or intentions to acquire or dispose of securities of Largo, but depending on market conditions, general economic and industry conditions, trading prices of securities of Largo, Largo’s business, financial condition and prospects and/or other relevant factors, the ARCF II Funds may develop such plans or intentions in the future.

 

This news release has been disseminated in accordance with the early warning requirements of Canadian provincial securities laws.

 

 

For further information, please contact: J. Alberto Arias, Director, phone: (212) 266-8600 e-mail: info@arc-fund.com.

 

The dissemination of this release in the United States or to any United States news service may constitute a violation of U.S. securities laws.

 

2

Exhibit 99.49

 

Form 62-103F1

 

REQUIRED DISCLOSURE UNDER THE EARLY WARNING REQUIREMENTS

 

Item 1 — Security and Reporting Issuer

 

1.1                               State the designation of securities to which this report relates and the name and address of the head office of the issuer of the securities.

 

Common shares (“Common Shares”) in the capital of Largo Resources Ltd. (“Largo”).

Largo Resources Ltd.

55 University Ave., Suite 1105

Toronto, ON

Canada M5J 2H7

 

1.2                               State the name of the market in which the transaction or other occurrence that triggered the requirement to file this report took place.

 

Not applicable.

 

The Common Shares were distributed in kind by ACRF I (as defined below) to its underlying limited partners on December 16, 2020 in accordance with its confidential fund documents.

 

The Common Shares are listed on the Toronto Stock Exchange.

 

Item 2 — Identity of the Acquiror

 

2.1                               State the name and address of the acquiror.

 

Arias Resource Capital Fund L.P. (“ARCF I”)

c/o Maples Corporate Services Limited

P.O. Box 309, Ugland House

George Town, Grand Cayman

Cayman Islands KY1-1104

 

2.2                               State the date of the transaction or other occurrence that triggered the requirement to file this report and briefly describe the transaction or other occurrence.

 

ARCF I made a distribution in kind in accordance with its confidential fund documents of an aggregate of 24,065,457 Common Shares to its underlying limited partners (the “Distribution in Kind”). The effective date of the Distribution in Kind was December 16, 2020.

 

2.3                               State the names of any joint actors.

 

ARCF I, Arias Resource Capital Fund II L.P. (“ARCF II”) and Arias Resource Capital Fund II (Mexico) L.P. (“ARCF II Mexico”, and together with ARCF I and ARCF II, the “ARC Funds”) are managed by Arias Resource Capital Management LP (the “Manager”). The respective general partner of each of the ARC Funds retains the power to make investment and voting decisions in respect of the Largo securities beneficially owned by the ARC Funds. J. Alberto Arias is the sole director of each of the general partners of the ARC Funds and indirectly controls the Manager. As such, J. Alberto Arias may be deemed to share voting and dispositive power

 

 

with respect to the Largo securities beneficially owned by the ARC Funds, but he disclaims any beneficial ownership of any such securities, except to the extent of his pecuniary interest therein.

 

Item 3 — Interest in Securities of the Reporting Issuer

 

3.1                               State the designation and number or principal amount of securities acquired or disposed of that triggered the requirement to file the report and the change in the acquiror’s securityholding percentage in the class of securities.

 

See Item 2.2 above.

 

Following the Distribution in Kind to its underlying limited partners, ARCF I no longer holds any Largo securities. ARCF II Mexico and ARCF II (the “ARCF II Funds”) own, in the aggregate, 233,300,763 Common Shares and 59,508,355 Warrants. J. Alberto Arias has been granted for service on the Largo Board of Directors a total of 440,000 vested options to acquire Common Shares (“Options”) and holds 98,000 Common Shares. Giving effect to the Distribution in Kind and assuming the exercise in full of the Warrants by the ARCF II Funds and the vested Options by J. Alberto Arias, the Common Shares held by the ARCF II Funds and J. Alberto Arias, collectively, would represent approximately 47.00% of the total outstanding Common Shares of Largo, on a partially diluted basis, representing a decrease of approximately 3.86%, as summarized below:

 

 

 

Common Shares issuable on exercise or 
conversion

 

 

 

 

 

 

 

 

 

 

 

 

% Change in

 

 

 

Common Shares Owned

 

Warrant Shares

 

Option Shares

 

Partially Diluted Total

 

Ownership (1)

 

J. Alberto Arias

 

98,000(0.02

)%

—

 

440,000

 

538,000(0.09

)%

(0.00

)%

ARCF I

 

—

 

—

 

—

 

—

 

(3.86

)%

ARCF II

 

220,681,896(39.13

)%

56,313,298

 

—

 

276,995,194(44.40

)%

(0.00

)%

ARCF II (Mexico)

 

12,520,867(2.22

)%

3,195,057

 

—

 

15,715,924(2.52

)%

(0.00

)%

TOTAL:

 

233,300,763(41.37

)%

59,508,355

 

440,000

 

293,249,118(47.00

)%

(3.86

)%

 

(1)         Represents change in ownership as a result of the Distribution in Kind on a partially diluted basis

 

3.2                               State whether the acquiror acquired or disposed ownership of, or acquired or ceased to have control over, the securities that triggered the requirement to file the report.

 

See Items 2.2 and 3.1 above.

 

3.3                               If the transaction involved a securities lending arrangement, state that fact.

 

Not applicable.

 

3.4                               State the designation and number or principal amount of securities and the acquiror’s securityholding percentage in the class of securities, immediately before and after the transaction or other occurrence that triggered the requirement to file this report.

 

See Items 2.2 and 3.1 above.

 

3.5                               State the designation and number or principal amount of securities and the acquiror’s securityholding percentage in the class of securities referred to in Item 3.4 over which

 

(a)            the acquiror, either alone or together with any joint actors, has ownership and control,

 

2

 

See Items 2.2 and 3.1 above.

 

(b)                 the acquiror, either alone or together with any joint actors, has ownership but control is held by persons or companies other than the acquiror or any joint actor, and

 

Not applicable.

 

(c)                the acquiror, either alone or together with any joint actors, has exclusive or shared control but does not have ownership.

 

Not applicable.

 

3.6                               If the acquiror or any of its joint actors has an interest in, or right or obligation associated with, a related financial instrument involving a security of the class of securities in respect of which disclosure is required under this item, describe the material terms of the related financial instrument and its impact on the acquiror’s securityholdings.

 

Not applicable.

 

3.7                               If the acquiror or any of its joint actors is a party to a securities lending arrangement involving a security of the class of securities in respect of which disclosure is required under this item, describe the material terms of the arrangement including the duration of the arrangement, the number or principal amount of securities involved and any right to recall the securities or identical securities that have been transferred or lent under the arrangement.

 

Not applicable.

 

State if the securities lending arrangement is subject to the exception provided in section 5.7 of NI 62-104.

 

Not applicable.

 

3.8                               If the acquiror or any of its joint actors is a party to an agreement, arrangement or understanding that has the effect of altering, directly or indirectly, the acquiror’s economic exposure to the security of the class of securities to which this report relates, describe the material terms of the agreement, arrangement or understanding.

 

Not applicable.

 

Item 4 — Consideration Paid

 

4.1                               State the value, in Canadian dollars, of any consideration paid or received per security and in total.

 

Not Applicable.

 

4.2                               In the case of a transaction or other occurrence that did not take place on a stock exchange or other market that represents a published market for the securities, including an issuance from treasury, disclose the nature and value, in Canadian dollars, of the consideration paid or received by the acquiror.

 

3

 

See Item 4.1 above.

 

4.3                               If the securities were acquired or disposed of other than by purchase or sale, describe the method of acquisition or disposition.

 

Not applicable.

 

Item 5 — Purpose of the Transaction

 

State the purpose or purposes of the acquiror and any joint actors for the acquisition or disposition of securities of the reporting issuer. Describe any plans or future intentions which the acquiror and any joint actors may have which relate to or would result in any of the following:

 

(a)         the acquisition of additional securities of the reporting issuer, or the disposition of securities of the reporting issuer;

 

(b)        a corporate transaction, such as a merger, reorganization or liquidation, involving the reporting issuer or any of its subsidiaries;

 

(c)      a sale or transfer of a material amount of the assets of the reporting issuer or any of its subsidiaries;

 

(d)      a change in the board of directors or management of the reporting issuer, including any plans or intentions to change the number or term of directors or to fill any existing vacancy on the board;

 

(e)      a material change in the present capitalization or dividend policy of the reporting issuer;

 

(f)     a material change in the reporting issuer’s business or corporate structure;

 

(g)      a change in the reporting issuer’s charter, bylaws or similar instruments or another action which might impede the acquisition of control of the reporting issuer by any person or company;

 

(h)      a class of securities of the reporting issuer being delisted from, or ceasing to be authorized to be quoted on, a marketplace;

 

(i)      the issuer ceasing to be a reporting issuer in any jurisdiction of Canada;

 

(j)      a solicitation of proxies from securityholders;

 

(k)       an action similar to any of those enumerated above.

 

The ARCF II Funds may, from time to time, acquire additional securities of Largo and/or dispose of such securities as they may deem appropriate. The ARCF II Funds currently have no other immediate plans or intentions that relate to or would result in any of the actions listed in items (a) to (k) above, but depending on market conditions, general economic and industry conditions, trading prices of Largo’s securities, Largo’s business, financial condition and prospects and/or other relevant factors, the ARCF II Funds may develop such plans or intentions in the future.

 

4

 

Item 6 — Agreements, Arrangements, Commitments or Understandings With Respect to Securities of the Reporting Issuer

 

Describe the material terms of any agreements, arrangements, commitments or understandings between the acquiror and a joint actor and among those persons and any person with respect to securities of the class of securities to which this report relates, including but not limited to the transfer or the voting of any of the securities, finder’s fees, joint ventures, loan or option arrangements, guarantees of profits, division of profits or loss, or the giving or withholding of proxies. Include such information for any of the securities that are pledged or otherwise subject to a contingency, the occurrence of which would give another person voting power or investment power over such securities, except that disclosure of standard default and similar provisions contained in loan agreements need not be included.

 

Largo and the ARC Funds are party to a governance agreement pursuant to which the ARC Funds have the right to nominate a director to Largo’s board of directors. Largo and the ARC Funds are also party to an amended and restated director nomination agreement, pursuant to which the ARC Funds have the right to designate: (a) three additional persons to be nominated for election to the Board of Directors for so long as the ARC Funds, whether individually or together, own at least 50% of the issued and outstanding Common Shares; (b) two additional persons to be nominated for election to the Board of Directors for so long as the ARC Funds, whether individually or together, own less than 50% but not less than 40% of the issued and outstanding Common Shares; and (c) one additional person to be nominated for election to the Board of Directors for so long as the ARC Funds, whether individually or together, own less than 40% but not less than 20% of the issued and outstanding Common Shares.

 

Item 7 — Change in material fact

 

If applicable, describe any change in a material fact set out in a previous report filed by the acquiror under the early warning requirements or Part 4 in respect of the reporting issuer’s securities.

 

See Items 2.2 and 3.1 above.

 

Item 8 — Exemption

 

If the acquiror relies on an exemption from requirements in securities legislation applicable to formal bids for the transaction, state the exemption being relied on and describe the facts supporting that reliance.

 

Not applicable.

 

5

 

Item 9 — Certification

 

Certificate

 

I, as the acquiror, certify to the best of my knowledge, information and belief, that the statements made in this report are true and complete in every respect.

 

Dated December 18, 2020

 

 

ARIAS RESOURCE CAPITAL FUND L.P.

 

 

 

 

By: ARIAS RESOURCE CAPITAL GP LTD., its general partner

 

 

 

 

 

By:

“J. Alberto Arias”

 

 

 

Name:

J. Alberto Arias

 

 

 

Title:

Director

 

6

Exhibit 99.50

 

 

TSX TRUST COMPANY

 

VIA ELECTRONIC TRANSMISSION

 

January 12, 2021

 

TO ALL APPLICABLE EXCHANGES AND COMMISSIONS:

 

RE:

LARGO RESOURCES LTD.

 

Confirmation of Notice of Record and Meeting Dates

 

We are pleased to confirm that Notice of Record and Meeting Dates was sent to The Canadian Depository for Securities.

 

We advise the following with respect to the upcoming Special Meeting of Security Holders for the subject issuer:

 

1.

 

ISIN:

 

CA5171034047

 

 

CUSIP:

 

517103404

2.

 

Date Fixed for the Meeting:

 

March 1, 2021

3.

 

Record Date for Notice:

 

January 25, 2021

4.

 

Record Date for Voting:

 

January 25, 2021

5.

 

Beneficial Ownership Determination Date:

 

January 25, 2021

6.

 

Classes or Series of Securities that entitle the holder to receive Notice of the Meeting:

 

COMMON

7.

 

Classes or Series of Securities that entitle the holder to vote at the meeting:

 

COMMON

8.

 

Business to be conducted at the meeting:

 

Special

9.

 

Notice-and-Access:

 

 

 

 

Registered Shareholders:

 

NO

 

 

Beneficial Holders:

 

NO

 

 

Stratification Level:

 

Not Applicable

10.

 

Reporting issuer is sending proxy-related materials directly to Non-Objecting Beneficial Owners:

 

YES

11.

 

Issuer paying for delivery to Objecting Beneficial Owners:

 

YES

 

 

Yours truly,

 

TSX Trust Company

 

 

 

“ Lori Winchester ”

 

Senior Relationship Manager

 

Lori.Winchester@tmx.com

 

 

 

Exhibit 99.51

 

Largo Resources Announces Special Meeting of Shareholders to Propose a
Share Consolidation Required for a Potential Listing on a Major U.S. Stock
Exchange

 

TORONTO—(BUSINESS WIRE)—January 14, 2021—Largo Resources Ltd. (“Largo” or the “Company”) (TSX: LGO) (OTCQX: LGORF) announces that it will hold a Special Meeting of Shareholders (the “Special Meeting”) on Monday, March 1, 2021. The Company has set the Record Date for the Special Meeting on January 25, 2021.

 

The purpose of the Special Meeting is to seek authorization from the Company’s shareholders to enable the Board of Directors (the “Board”) to consider a consolidation of the Company’s issued and outstanding common shares (“Common Shares”) at a ratio of up to one post-consolidation share for every ten pre-consolidation shares. Concurrent with the Special Meeting and related to the proposed share consolidation, the Company’s Board is also considering a potential listing of the Company’s shares in the United States (“U.S.”) with the view of increasing access to U.S. capital markets and enhancing overall shareholder value—particularly as the Company continues to strategically develop its recently launched U.S.-based Largo Clean Energy division into an industry-leading, vertically integrated vanadium redox flow battery business.

 

Any authority of the Board to consolidate the shares is conditional upon the prior approval of the Company’s shareholders and the Toronto Stock Exchange (the “TSX”). Additional information, including the time and instructions for virtually accessing and voting at the Special Meeting will be provided at a later date. Further, a Management Information Circular for the upcoming Special Meeting will be mailed to shareholders and filed by the Company on SEDAR.

 

About Largo Resources

 

Largo Resources is a leading, vertically integrated provider of cleantech solutions through its high-quality vanadium products. Largo can service multiple vanadium market applications through the supply of its unrivaled VPURETM and VPURE+TM products, which are sourced from one of the world’s highest-grade vanadium deposits at the Company’s Maracás Menchen Mine located in Brazil. Largo is also focused on the advancement of renewable energy storage solutions through Largo Clean Energy and its world-class VCHARGE± vanadium redox flow battery systems. The Company’s common shares are listed on the Toronto Stock Exchange under the symbol “LGO”.

 

For more information on Largo and VPURETM, please visit www.largoresources.com and www.largoVPURE.com.

 

For additional information on Largo Clean Energy, please visit www.largocleanenergy.com.

 

###

 

Neither the Toronto Stock Exchange (nor its regulatory service provider) accepts responsibility for the adequacy or accuracy of this press release.

 

 

Forward-looking Information:

 

This press release contains forward-looking information under Canadian securities legislation, some of which may be considered “financial outlook” for the purposes of application Canadian securities legislation (“forward-looking statements”). Forward-looking information in this press release includes, but is not limited to, the approval of the share consolidation and the ultimate consolidation ratio selected, the Company’s intention and ability to list on a United States stock exchange, and the anticipated benefits of completing a share consolidation and United States stock exchange listing. Forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. All information contained in this news release, other than statements of current and historical fact, is forward looking information. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of Largo or Largo Clean Energy to be materially different from those expressed or implied by such forward-looking statements, including but not limited to those risks described in Largo’s annual information form and in its annual and interim MD&As filed to its profile on www.SEDAR.com. Forward-looking statements are based on the opinions and estimates of management as of the date such statements are made. Although management of Largo has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Largo does not undertake to update any forward-looking statements, except in accordance with applicable securities laws.

 

Contacts

 

Alex Guthrie

Senior Manager, External Relations

aguthrie@largoresources.com

Tel: +1 416-861-9797

 

Exhibit 99.52

 

Largo Resources Announces Record Quarterly and Full Year 2020
Operational Results and Exceeds 2020 Sales Guidance; Provides 2021
Guidance

 

All amounts expressed are in U.S. dollars, denominateCd by “$”

 

Q4 and FY 2020 Production and Sales Highlights:

 

·                  Record quarterly V2O5 production of 3,340 tonnes (7.4 million lbs(1)) in Q4 2020, an 11% increase over Q4 2019

 

·                  Record annual V2O5 production of 11,825 tonnes (26.1 million lbs(1)) in 2020, an increase of 12% over 2019; Within 2020 V2O5 production guidance of 11,750 — 12,250 tonnes

 

·                  Quarterly global V2O5 recovery(4) of 80.6% in Q4 2020, a 4% increase over Q4 2019

 

·                  Record annual global V2O5 recovery(4) of 81.4% in 2020; a 4% increase over 2019

 

·                  2020 sales guidance exceeded: Total V2O5 equivalent sales of 10,260 tonnes in 2020, exceeding high-end V2O5 sales guidance by 260 tonnes

 

·                  Record quarterly sales of 3,751 tonnes of V2O5 equivalent in Q4 2020, a 31% increase over Q4 2019

 

2021 Guidance

 

·                  V2O5 equivalent production of 12,000 — 12,500 tonnes; V2O5 equivalent sales of 12,250 — 12,750 tonnes; Cash operating cost excluding royalties(2) of $3.10 — 3.30/lb V2O5 sold; Total cash costs of $3.50 — 3.70/lb V2O5 sold; Sustaining capital expenditures(6) of $8.0 — 10.0 million; Vanadium trioxide (“V2O3”) processing plant expenditures of $7.0 — 9.0 million

 

·                  Planned shutdown in January 2021: Implementation of kiln feed rate improvements to increase nameplate production capacity to 1,100 tonnes of V2O5 per month; Kiln and cooler refractory replacements; Planned preventative maintenance program

 

·                  The Company will strongly focus on the advancement of Largo Clean Energy and its VCHARGE± battery technology for the fast-growing renewable energy storage sector

 

 

TORONTO—(BUSINESS WIRE)—January 20, 2021—Largo Resources Ltd. (“Largo” or the “Company”) (TSX: LGO) (OTCQX: LGORF) is very pleased to announce that it has achieved record quarterly and annual 2020 operational results at the Maracás Menchen Mine and has exceeded its 2020 annual sales guidance by 260 tonnes. Building upon the operational and sales accomplishments in 2020, management is confident in its ability to deliver on its production, sales and cost guidance in 2021. The Company is also heavily focused on the strategic development of Largo Clean Energy in 2021 to provide safe, grid-scale VRFBs to fast-growing renewable energy storage sector.

 

Paulo Misk, President and Chief Executive Officer of Largo, stated: “Operations at the Maracás Menchen Mine had an exceptionally strong finish to the year resulting in new quarterly and annual production records. I am also delighted to report that the Company has exceeded its 2020 sales guidance by 260 tonnes, with Q4 2020 V2O5 equivalent sales of 3,751 tonnes representing a new quarterly sales record for the Company. 2020 was transformational and demanding year for Largo; one in which the Company implemented its new sales and trading operations, started construction of its V2O3 plant and launched Largo Clean Energy in the midst of a global pandemic. The entire Largo team would like to take this opportunity to extend our sympathies to everyone who has been affected by this virus.” He continued: “I remain confident that the operational and sales processes we instituted in 2020 have set a solid foundation for continued growth in 2021. We are pleased to report that we expect to increase Largo’s annual V2O5 production from 11,825 tonnes in 2020 to between 12,000 — 12,500 tonnes of V2O5 equivalent in 2021. We also expect to increase our V2O5 equivalent sales to 12,250 — 12,750 tonnes in 2021, representing an increase of 22% over 2020. Further, we expect to maintain our low-cost profile in 2021 with cash operating costs excluding royalties(2) and total cash costs(2) expected to be between $3.10 to $3.30 and $3.50 to 3.70 per pound V2O5 sold, respectively. Lastly, we continue to advance the Company’s robust project pipeline with the goal of significantly increasing shareholder value at Largo. We plan to release an updated technical report in late Q1 2021 to upgrade and expand known resources, and incorporate the V2O3 plant and titanium dioxide (“TiO2”) pigment projects.”

 

He concluded: “In the first weeks of 2021, vanadium prices have increased in all main markets on the back of solid demand, low inventories and renewed optimism in the overall metals and industrial complex. We also believe that growing interest from the battery sector will continue to drive future vanadium demand growth in 2021 and beyond. With the addition of Largo Clean Energy in December 2020, we are working to develop our clean energy storage business in 2021 to provide safe and sustainable vanadium redox flow battery (“VRFB”) systems to the fast-growing renewable energy market. Global energy storage deployment is expected to reach 1,095 GW/2,850 GWh(3) in 2040 and we believe long-duration VRFBs will play a critical role in addressing this significant demand. We remain very excited for the year ahead as the Company continues the necessary work to become a key player in the renewable energy storage industry.”

 

Contributing to a Lower Carbon Future with the VCHARGE± Battery Technology

 

In December 2020, the Company launched Largo Clean Energy to provide safe, long-duration VRFBs for the fast-growing global renewable energy storage market. The Company believes that the renewable energy storage market has reached an inflection point and grid-scale VRFBs are expected to be a strategic solution for this growing sector. The VRFB’s strengths lie within its

 

 

longevity, lack of degradation in performance over time (even after many thousands of cycles), non-flammability, deep discharge capability and key sustainability characteristics such as the ability to re-use the vanadium electrolyte at the end of the battery’s life. These attributes make the VRFB ideally suited for industrial and commercial microgrids, renewables integration, EV charging and grid applications. The Company believes that its acquisition of patented VRFB electrolyte processing technology along with the utilization of industry-leading flow battery stack design and supply of Largo’s reliable, high purity vanadium sets Largo Clean Energy apart from other competing battery technologies. The Company’s team of industry experts will continue the advancement of Largo Clean Energy and its superior VCHARGE± battery technology to begin capitalizing on new renewable energy storage opportunities around the world.

 

A summary of Q4 and FY 2020 production results from the Maracás Menchen Mine is presented below:

 

 

 

2020

 

2019

 

 

 

Q4

 

Full Year

 

Q4

 

Full Year

 

Total Ore Mined (tonnes)

 

338,226

 

1,087,518

 

329,792

 

1,156,016

 

Ore Grade Mined - Effective Grade (%)(5)

 

1.18

 

1.29

 

1.36

 

1.34

 

 

 

 

 

 

 

 

 

 

 

Effective Grade of Ore Milled (%)5

 

1.28

 

1.34

 

1.57

 

1.50

 

Concentrate Produced (tonnes)

 

108,609

 

412,661

 

100,879

 

382,501

 

Grade of Concentrate (%)

 

3.24

 

3.28

 

3.28

 

3.29

 

Contained V2O5 (tonnes)

 

3,515

 

13,540

 

3,310

 

12,580

 

 

 

 

 

 

 

 

 

 

 

Crushing Recovery (%)

 

98.1

 

98.1

 

96.6

 

97.0

 

Milling Recovery (%)

 

95.4

 

96.2

 

96.0

 

96.9

 

Kiln Recovery (%)

 

91.2

 

91.0

 

89.7

 

89.1

 

Leaching Recovery (%)

 

98.5

 

98.6

 

96.7

 

96.8

 

Chemical Plant Recovery (%)

 

95.8

 

96.3

 

96.1

 

96.8

 

Global Recovery (%)(4)

 

80.6

 

81.4

 

77.3

 

78.5

 

 

 

 

 

 

 

 

 

 

 

V2O5 produced (tonnes)

 

3,340

 

11,825

 

3,011

 

10,577

 

V2O5 produced (equivalent pounds(1))

 

7,363,431

 

26,069,631

 

6,638,111

 

23,318,266

 

 

The Company achieved a new annual production record in 2020 with total V2O5 production of 11,825 tonnes, representing an increase of 12% over 2019. Total V2O5 production of 3,340 tonnes in Q4 2020 represented a new quarterly production record for the Company, being 11% higher than Q4 2019 and 8% higher than the previous record of 3,092 tonnes set in Q3 2020. Operational stability and an increase in the global recovery rate(4) drove our production performance in Q4 and over 2020 as a whole.

 

The Company achieved a new annual average global V2O5 recovery(4) record of 81.4% in 2020 which represents a 4% increase over the 78.5% averaged in 2019. In Q4 2020, global recoveries(4) averaged 80.6% which compares favourably to 77.3% averaged in Q4 2019. The increase in global recoveries(4) over 2020 is primarily due to the completion of continuous improvement

 

 

projects in the plant focused on improving recoveries. This was highlighted by consecutive quarter-over-quarter global recovery rate(4) increases in 2020, with a new quarterly average global recovery record(4) of 84.2% being achieved in Q3 2020 (80.8% in Q2 2020 and 79.9% in Q1 2020).

 

The Company mined 1,087,518 tonnes of ore with an effective V2O5 grade(5) of 1.29% in 2020 compared to 1,156,016 tonnes with an effective V2O5 grade(5) of 1.34% in 2019. In Q4 2020, 338,226 tonnes of ore with an effective V2O5 grade(5) of 1.18% were mined compared to 329,792 tonnes with an effective V2O5 grade(5) of 1.36% in Q4 2019. The Company also produced 412,661 tonnes of concentrate ore with an average V2O5 grade of 3.28% in 2020 compared to 382,501 tonnes produced in 2019 with a grade of 3.29%. In Q4 2020, 108,609 tonnes of concentrate ore was produced with an average V2O5 grade of 3.24% compared to 100,879 tonnes produced in Q4 2019 with a grade of 3.28%. The decrease in total ore mined in 2020 when compared to 2019 is largely due to operational adjustments to limit the mine site contractor workforce during the COVID-19 pandemic as well as the usage of weathered ore stockpiles in first half of 2020. The operational performance in 2020 remained in-line with the Company’s plans despite the COVID-19 restrictions put in place.

 

2021 Production, Cost and CAPEX Guidance

 

2021 Guidance

 

 

 

V2O5 equivalent production guidance (tonnes)

 

12,000 – 12,500

 

V2O5 equivalent sales (tonnes)

 

12,250 – 12,750

 

Cash operating cost guidance excluding royalties ($/lb sold)(2)

 

$3.10 – 3.30

 

Total cash costs ($/lb sold)(2)

 

$3.50 – 3.70

 

Sustaining capital expenditures(6)

 

$8.0 – 10.0 million

 

V2O3 processing plant expenditures

 

$7.0 – 9.0 million

 

 

The Company began a planned shutdown on January 11, 2021 to replace the kiln and cooler refractories which will result in approximately 19 days of down time. As a result of this shutdown, the Company anticipates lower production during the month of January and slightly higher cash operating costs(2) in Q1 2021. The Company will utilize this downtime to perform feed rate improvements on the kiln which is expected to increase the nameplate production capacity to 1,100 tonnes of V2O5 per month from 1,000. Following the planned ramp period, the Company expects to reach the full operational run rate of 1,100 tonnes of V2O5 per month by Q2 2021. The Company will also conduct a preventative maintenance program downstream of the kiln and cooler during this time.

 

The Company expects to complete the construction and subsequent ramp up and commissioning of its V2O3 plant in Q3 2021. Total capital expenditures are expected to be in the range of approximately $10.0 to 11.0 million, with the remaining $7.0 - 9.0 being incurred in H1 2021. One of the main applications of V2O3 is vanadium electrolyte, which is required in the manufacturing of VRFB systems. The Company expects its V2O3 nameplate production capacity will be 14 tonnes per day (or 420 tonnes per month), an increase of 100% from the 7 tonnes per day as originally planned.

 

 

The Company is continuing to monitor the evolving impacts of the COVID-19 pandemic and will take all possible actions to help minimize the impact on the Company and its people. The Company’s 2021 guidance is presented on a “business as usual” basis.

 

About Largo Resources

 

Largo Resources is an industry preferred producer and supplier of high-quality vanadium. Largo can service multiple vanadium market applications through the supply of its unrivaled VPURETM and VPURE+TM products, which are sourced from one of the world’s highest-grade vanadium deposits at the Company’s Maracás Menchen Mine located in Brazil. Largo is also focused on the advancement of renewable energy storage solutions through Largo Clean Energy and its world-class VCHARGE± vanadium redox flow battery technology. The Company’s common shares are listed on the Toronto Stock Exchange under the symbol “LGO”.

 

For more information on Largo and VPURETM, please visit www.largoresources.com and www.largoVPURE.com.

 

For additional information on Largo Clean Energy, please visit www.largocleanenergy.com.

 

Neither the Toronto Stock Exchange (nor its regulatory service provider) accepts responsibility for the adequacy or accuracy of this press release.

 

Forward-looking Information:

 

This press release contains forward-looking information under Canadian securities legislation, some of which may be considered “financial outlook” for the purposes of application Canadian securities legislation (“forward-looking statements”). Forward-looking information in this press release includes, but is not limited to, statements with respect to the timing and amount of estimated future production and sales; costs of future activities and operations; the extent of capital and operating expenditures; and the extent and overall impact of the COVID-19 pandemic in Brazil and globally. Forward-looking information in this press release also includes, but is not limited to, statements with respect to our ability to build, finance and operate a VRFB business, our ability to protect and develop our technology, our ability to maintain our IP, our ability to market and sell our VCHARGE± battery system on specification and at a competitive price, our ability to secure the required production resources to build our VCHARGE± battery system, and the adoption of VFRB technology generally in the market. Forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. All information contained in this news release, other than statements of current and historical fact, is forward looking information. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of Largo or Largo Clean Energy to be materially different from those expressed or implied by such forward-looking statements, including but not limited to those risks described in the annual information form of Largo and in its public documents filed on SEDAR from time to

 

 

time. Forward-looking statements are based on the opinions and estimates of management as of the date such statements are made. Although management of Largo has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Largo does not undertake to update any forward-looking statements, except in accordance with applicable securities laws. Readers should also review the risks and uncertainties sections of Largo’s annual and interim MD&As which also apply.

 

Future Oriented Financial Information:

 

Any financial outlook or future oriented financial information contained in this press release, as such term is defined by applicable securities laws, has been approved by management of Largo as of the date hereof and is provided for the purpose of providing information about management’s current expectations and plans relating to the Company’s 2021 production guidance. Readers are cautioned that any such future oriented financial information contained herein should not be used for purposes other than those for which it is disclosed herein. The Company and its management believe that the prospective financial information as to the Company’s anticipated 2021 production guidance has been prepared on a reasonable basis, reflecting management’s best estimates and judgments. However, because this information is highly subjective, it should not be relied on as necessarily indicative of future results.

 

Non-GAAP Measures

 

The Company uses certain non-GAAP financial performance measures in its press release and MD&A, which are described in the following section.

 

Cash Operating Costs

 

The Company’s press release refers to cash operating costs per pound, a non-GAAP performance measure, in order to provide investors with information about a key measure used by management to monitor performance. This information is used to assess how well the Maracás Menchen Mine is performing compared to plan and prior periods, and also to assess its overall effectiveness and efficiency. Cash operating costs includes mine site operating costs such as mining costs, plant and maintenance costs, sustainability costs, mine and plant administration costs, royalties, general and administrative costs (all for the mine properties segment), but excludes depreciation and amortization, share-based payments, foreign exchange gains or losses, commissions, reclamation, capital expenditures and exploration and evaluation costs. Operating costs not attributable to the mine properties segment are also excluded, including product acquisition costs and inventory write-downs. These costs are then divided by the pounds of vanadium sold that were produced by the Maracás Menchen Mine to arrive at the cash operating costs per pound. Prior to 2020, these costs were divided by the pounds of production from the Maracás Menchen Mine, rather than pounds sold. These measures, along with revenues, are considered to be one of the key indicators of the Company’s ability to generate operating earnings and cash flow from its Maracás Menchen Mine. These cash operating costs

 

 

measures do not have any standardized meaning prescribed by IFRS and differ from measures determined in accordance with IFRS. These measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These measures are not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.

 

Total Cash Costs

 

The Company’s press release refers to total cash costs, a non-GAAP performance measure, in order to provide investors with information about a key measure used by management to monitor performance. This information is used to assess how well the Company is performing at producing and selling vanadium products compared to plan and prior periods, and also to assess its overall effectiveness and efficiency. Total cash costs are a non-GAAP performance measure that includes all operating costs, sales and distribution costs and the Company’s total professional, consulting and management fees and other general and administrative expenses. Total cash costs exclude royalties, depreciation and amortization, share-based payments, foreign exchange gains or losses, commissions, reclamation costs, exploration and evaluation costs and capital expenditures. These costs are then divided by the total pounds of vanadium sold by the Company to arrive at total cash costs. This measure differs from cash operating costs per pound in that it includes all operating costs, sales and distribution costs, professional, consulting and management fees and other general and administrative expenses, rather than just those from the Mine properties segment, and is calculated on total V2O5 equivalent pounds sold rather than pounds sold that were produced by the Maracás Menchen Mine. The Company believes this will be a more accurate reflection of its all-in unit costs. This total cash costs measure does not have any standardized meaning prescribed by IFRS and differs from measures determined in accordance with IFRS. This measure is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. This measure is not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.

 

(1) Conversion of tonnes to pounds, 1 tonne = 2,204.62 pounds or lbs.

(2) The cash operating costs per pound produced and cash operating costs excluding royalties per pound produced reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this press release.

(3) BloombergNEF

(4) Global recovery is the product of crushing recovery, milling recovery, kiln recovery, leaching recovery and chemical plant recovery.

(5) Effective grade represents the percentage of magnetic material mined multiplied by the percentage of V2O5 in the magnetic concentrate.

(6) Includes capitalized waste stripping costs.

 

 

Contacts

 

Investor Relations:

Alex Guthrie

Senior Manager, External Relations

aguthrie@largoresources.com

Tel: +1 416-861-9797

 

Media Enquiries:

Crystal Quast

Bullseye Corporate

Quast@bullseyecorporate.com

Tel: +1 647-529-6364

 

Exhibit 99.53

 

LARGO RESOURCES LTD.

CERTIFICATE

 

Reference is made to the special meeting (the “Meeting”) of holders of common shares of Largo Resources Inc. (“Largo”) scheduled to be held on March 1, 2021.

 

I, Ernest Cleave, Chief Financial Officer, hereby certify, in my capacity as an officer of Largo, for and on behalf of Largo, and not in my personal capacity, that:

 

1.                                      Largo has arranged to have proxy-related materials for the Meeting sent in compliance with National Instrument 54-101 — Communication with Beneficial Owners of Securities of a Reporting Issuer (“NI 54-101”) in compliance with the applicable timing requirements in sections 2.9 and 2.12 of NI 54-101.

 

2.                                      Largo has arranged to have carried out all of the requirements of NI 54-101 in addition to those described in Item 1 above in connection with the Meeting.

 

3.             Largo is relying upon Section 2.20 of NI 54-101.

 

 

DATED February 5, 2021.

 

 

 

LARGO RESOURCES LTD.

 

 

 

 

 

 

By:

“Ernest Cleave”

 

 

Ernest Cleave

 

 

Chief Financial Officer

 

Exhibit 99.54

 

LARGO RESOURCES LTD.

(the “Company”)


FORM OF PROXY (“PROXY”)

 

Special Meeting
March 1, 2021 at 11:00 a.m. (Toronto time)
Online at - http://web.lumiagm.com/294318491
(the “Meeting”)

 

RECORD DATE:

January 25, 2021

CONTROL NUMBER:

 

SEQUENCE #:

 

FILING DEADLINE FOR PROXY:

February 25, 2021 at 11:00 a.m. (Toronto time)

 

VOTING METHOD

 

INTERNET

Go to www.voteproxyonline.com and enter the 12 digit control number above

FACSIMILE

416-595-9593

MAIL

TSX Trust Company
301 - 100 Adelaide Street West
Toronto, Ontario, M5H 4H1

 

The undersigned hereby appoints Paulo Misk, whom failing Ernest Cleave

 

(the “Management Nominees”), or instead of any of them, the following Appointee

 

 

 

Please print appointee name

 

 

as proxyholder on behalf of the undersigned with the power of substitution to attend, act and vote for and on behalf of the undersigned in respect of all matters that may properly come before the Meeting and at any adjournment(s) or postponement(s) thereof, to the same extent and with the same power as if the undersigned were personally present at the said Meeting or such adjournment(s) or postponement(s) thereof in accordance with voting instructions, if any, provided below.

 

- SEE VOTING GUIDELINES ON REVERSE -

 

RESOLUTIONS — MANAGEMENT VOTING RECOMMENDATIONS ARE INDICATED BY HIGHLIGHTED TEXT ABOVE THE BOXES

 

 

 

FOR

 

AGAINST

1. Share Consolidation

 

 

 

 

To consider and, if deemed advisable, pass, with or without variation, a special resolution approving an amendment to the articles of incorporation of Largo to consolidate its outstanding common shares on the basis of a ratio to be determined by the board of directors of Largo, in its sole discretion, within a range of one post-consolidation common share of the Company for up to every ten (10) pre-consolidation common shares of Largo, as more particularly described in the Circular

 

¨

 

¨

 

 

 

 

This proxy revokes and supersedes all earlier dated proxies and MUST BE SIGNED

 

 

 

 

 

 

PLEASE PRINT NAME

 

Signature of registered owner(s)

Date (MM/DD/YYYY)

 

 

 

Proxy Voting — Guidelines and Conditions

 

 

1.              THIS PROXY IS SOLICITED BY MANAGEMENT OF THE COMPANY.

 

2.              THIS PROXY SHOULD BE READ IN CONJUNCTION WITH THE MEETING MATERIALS PRIOR TO VOTING.

 

3.              If you appoint the Management Nominees to vote your securities, they will vote in accordance with your instructions or, if no instructions are given, in accordance with the Management Voting Recommendations highlighted for each Resolution on the reverse. If you appoint someone else to vote your securities, they will also vote in accordance with your instructions or, if no instructions are given, as they in their discretion choose.

 

4.              This proxy confers discretionary authority on the person named to vote in his or her discretion with respect to amendments or variations to the matters identified in the Notice of the Meeting accompanying the proxy or such other matters which may properly come before the Meeting or any adjournment or postponement thereof.

 

5.              Each security holder has the right to appoint a person other than the Management Nominees specified herein to represent them at the Meeting or any adjournment or postponement thereof. Such right may be exercised by inserting in the space labeled “Please print appointee name”, the name of the person to be appointed, who need not be a security holder of the Company.

 

6.              To be valid, this proxy must be signed. Please date the proxy. If the proxy is not dated, it is deemed to bear the date of its mailing to the security holders of the Company.

 

7.              To be valid, this proxy must be filed using one of the Voting Methods and must be received by TSX Trust Company before the Filing Deadline for Proxies, noted on the reverse or in the case of any adjournment or postponement of the Meeting not less than 48 hours (Saturdays, Sundays and holidays excepted) before the time of the adjourned or postponed meeting. Late proxies may be accepted or rejected by the Chairman of the Meeting in his discretion, and the Chairman is under no obligation to accept or reject any particular late proxy.

 

8.              If the security holder is a corporation, the proxy must be executed by an officer or attorney thereof duly authorized, and the security holder may be required to provide documentation evidencing the signatory’s power to sign the proxy.

 

9.              Guidelines for proper execution of the proxy are available at www.stac.ca. Please refer to the Proxy Protocol.

 

Investor inSite

 

 

TSX Trust Company offers at no cost to security holders, the convenience of secure 24-hour access to all data relating to their account including summary of holdings, transaction history, and links to valuable security holder forms and Frequently Asked Questions.

 

To register, please visit

 

www.tsxtrust.com/investorinsite

 

Click on, “Register” and complete the registration form. Call us toll free at 1-866-600-5869 with any questions.

 

www.tsxtrust.com

VANCOUVER CALGARY TORONTO MONTRÉAL

 

EXHIBIT 99.55

 

 

NOTICE AND MANAGEMENT INFORMATION CIRCULAR OF
A SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON
MARCH 1, 2021

 

DATED JANUARY 25, 2021

 

 

 

LARGO RESOURCES LTD.

 

NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS

 

NOTICE IS HEREBY GIVEN that a special meeting (the “Meeting”) of the holders of common shares (“Shares”) of Largo Resources Ltd. (“Largo”) will be held by way of live webcast on March 1, 2021 at 11:00 a.m. (Toronto time), for the following purposes:

 

1.                          to consider and, if deemed advisable, pass, with or without variation, a special resolution approving an amendment to the articles of incorporation of Largo to consolidate its outstanding common shares on the basis of a ratio to be determined by the board of directors of Largo, in its sole discretion, within a range of one post-consolidation common share of the Company for up to every ten (10) pre-consolidation common shares of Largo, as more particularly described in the Circular; and

 

2.                          to transact such further or other business as may properly come before the Meeting or any postponement(s) or adjournment(s) thereof.

 

The specific details of the matters to be considered at the Meeting are set forth in the accompanying management information circular.

 

Due to restrictions relating the Global COVID-19 pandemic, and to mitigate risks to the health and safety of our communities, shareholders, employees and other stakeholders, Largo is holding the Meeting as a completely virtual meeting, which will be conducted via live webcast, where all shareholders regardless of geographic location and equity ownership will have an equal opportunity to participate at the Meeting and engage with Largo as well as other shareholders. Shareholders will not be able to attend the Meeting in person.

 

Registered shareholders (being shareholders who hold their Shares directly, registered in their own names) and duly appointed proxyholders will be able to attend, participate and vote at the Meeting online at http://web.lumiagm.com/294318491. Non-registered shareholders (being shareholders who hold their Shares through a broker, investment dealer, bank, trust company, custodian, nominee or other intermediary) who have not duly appointed themselves as proxyholder will be able attend the Meeting as guests, however they will not be able to vote at the Meeting. The password to the Meeting is “largo2021” (case sensitive).

 

As a shareholder of Largo, it is very important that you read the accompanying management information circular dated January 25, 2021 (the “Circular”) and other Meeting materials carefully. They contain important information with respect to voting your Shares and attending and participating at the Meeting.

 

A shareholder who wishes to appoint a person other than the management nominees identified on the form of proxy or voting instruction form, to represent him, her or it at the Meeting may do so by inserting such person’s name in the blank space provided in the form of proxy or voting instruction form and following the instructions for submitting such form of proxy or voting instruction form. This MUST be completed prior to registering such proxyholder, which is an additional step to be completed once you have submitted your form of proxy or voting instruction form. If you wish that a person other than the management nominees identified on the form of proxy or voting instruction form attend and participate at the Meeting as your proxy and vote your Shares, including if you are a non-registered shareholder and wish to appoint yourself as proxyholder to attend, participate and vote at the Meeting, you MUST register such proxyholder after having submitted your form of proxy or voting instruction form identifying such proxyholder by 11:00 a.m. (Toronto time) on February 25, 2021. Failure to register the proxyholder will result in the proxyholder not receiving a Username to participate in the Meeting. Without a Username, proxyholders will not be able to attend, participate or vote at the Meeting. In order to register a proxyholder, whether yourself or a third party, shareholders MUST email

 

 

TSX Trust Company (“TSX Trust”) at tmxeinvestorservices@tmx.com with their proxyholder’s contact information, so that TSX Trust may provide the proxyholder with a Username via email.

 

If you are a registered shareholder and are unable to attend the Meeting online please date and execute the accompanying form of proxy and return it in the envelope provided to TSX Trust, Largo’s transfer agent, at 100 Adelaide Street W., Ste. 301, Toronto, ON, M5H 4H1 by no later than 11:00 a.m. (Toronto time) on February 25, 2021 or 48 hours (excluding Saturdays, Sundays and holidays) before any postponement or adjournment of the Meeting.

 

If you are not a registered shareholder and receive these materials through your broker or through another intermediary, please complete and return the form of proxy in accordance with the instructions provided to you by your broker or by the other intermediary.

 

Largo’s directors have fixed January 25, 2021 as the record date. Holders of Shares at the close of business on January 25, 2021 are entitled to receive notice of and to vote at the Meeting or any postponement(s) or adjournment(s) thereof.

 

DATED at Toronto, Ontario this 25th day of January, 2021.

 

By Order of the Board of Directors

 

 

(Signed) “Paulo Misk”

 

Director, President and

 

Chief Executive Officer

 

 

 

TABLE OF CONTENTS

 

GENERAL PROXY INFORMATION

3

VOTING INFORMATION

3

Who Can Vote

3

Voting Your Common Shares at the meeting

3

Voting Your Common Shares by Proxy

5

Voting Shares and Principal Holders

7

MATTERS TO BE ACTED UPON AT THE MEETING

8

INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON

11

INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS

11

INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS

11

WHERE YOU CAN FIND ADDITIONAL INFORMATION

12

DIRECTORS’ APPROVAL

13

 

 

MANAGEMENT INFORMATION CIRCULAR

 

This management information circular (“Circular”) is furnished in connection with the solicitation of proxies by and on behalf of the management of Largo Resources Ltd. for use at the special meeting of shareholders (the “Meeting”) to be held by way of live webcast on March 1, 2021 at 11:00 a.m. (Toronto time), or at any postponement(s) or adjournment(s) thereof. See “Voting Information - Voting Your Common Shares at the Meeting — Attending and Participating at the Meeting”.

 

The Meeting has been called for the purposes set forth in the Notice of Special Meeting of Shareholders (the “Notice of Meeting”) that accompanies this Circular. No director of the Company has informed management of the Company that he or she intends to oppose any action intended to be taken by management of the Company.

 

References in this Circular to “we”, “us”, “our” and similar terms, as well as references to “Largo”, or the “Company”, refer to Largo Resources Ltd. and references to the “Board” refer to our board of directors.

 

No person has been authorized to give any information or to make any representation in connection with any other matters to be considered at the Meeting other than those contained in this Circular and, if given or made, any such information or representation must not be relied upon as having been authorized.

 

Forward-Looking Information

 

Certain statements in this Circular constitute “forward-looking information” and “forward-looking statements” within the meaning of applicable Canadian and United States securities laws (together, “forward-looking information”). The words “scheduled”, “may”, “will”, “would”, “should”, “could”, “expects”, “plans”, “intends”, “trends”, “indications”, “anticipates”, “believes”, “estimates”, “predicts”, “likely” or “potential” or the negative or other variations of these words or other comparable words or phrases, are intended to identify forward-looking information.

 

Forward-looking information is based on estimates and assumptions made by the Company in light of its experience and perception of historical trends, current conditions and expected future developments, as well as other factors that the Company believes are appropriate and reasonable in the circumstances, but there can be no assurance that such estimates and assumptions will prove to be correct or that the Company’s business guidance, objectives, plans and strategic priorities will be achieved.

 

Many factors could cause the Company’s actual results or affairs to differ materially from those expressed or implied by forward-looking information, including, without limitation, the factors discussed in the “Risk Factors” section of our Annual Information Form and as described below under “Matters to be Acted Upon at the Meeting — Consolidation of Common Shares - Risk Factors Associated with the Share Consolidation”. Although these factors are not intended to represent a complete list of the factors that could affect the Company, they should be considered carefully. The forward-looking information contained in this Circular are made as of the date of this Circular, and the Company has no intention and undertakes no obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by applicable securities regulations. The forward-looking information contained in this Circular are expressly qualified by this cautionary statement. We caution investors not to rely on forward-looking information contained in this Circular when making an investment decision in our securities. You are encouraged to read our filings with Canadian securities regulatory authorities available at www.sedar.com for a discussion of these and other risks and uncertainties. Please also refer to the section entitled “Cautionary Note Regarding Forward-Looking Information” in the Company’s Annual Information Form for additional details with respect to forward-looking statements.

 

Date of Information and Currency Presentation

 

Unless otherwise indicated, the information in this Circular is given as at January 25, 2021. All dollar amounts referenced herein, unless otherwise indicated, are expressed in Canadian dollars “$”. United States dollars may be referred to as “United States dollars” or “US$”. Certain totals, subtotals and percentages in this Circular may not reconcile due to rounding.

 

2

 

GENERAL PROXY INFORMATION

 

This Circular provides the information you need in order to vote at the Meeting.

 

·                       If you are a registered holder of our common shares (each, a “Common Share”), a form of proxy is enclosed that you can use to vote at the Meeting or you may attend, participate and vote at the Meeting online at http://web.lumiagm.com/294318491.

 

·                       If you are a beneficial holder, meaning your Common Shares are held through your broker or through another intermediary, you may receive either a form of proxy or a voting instruction form and should follow the instructions provided to you by your broker or by the other intermediary.

 

See “Voting Your Common Shares By Proxy — Appointing a Proxyholder”, and “Attending and Participating at the Meeting” below under “Voting Information”.

 

These materials are being sent to both registered and beneficial owners of Common Shares. If you are a beneficial holder, and we or our agent have sent these materials directly to you, your name, address and information about your share holdings have been obtained in accordance with applicable securities regulatory requirements from the broker or other intermediary holding the shares on your behalf. By choosing to send these materials to you directly, we (and not the intermediary holding on your behalf) have assumed responsibility for (i) delivering these materials to you, and (ii) providing you with a form of proxy so you can vote your Common Shares at the Meeting. See “Voting Information — Voting Your Common Shares at the Meeting”.

 

The solicitation of proxies will be primarily by mail, but proxies may also be solicited in person, by telephone or other form of correspondence. The cost of preparing and mailing this Circular and other materials relating to the Meeting and the cost of soliciting proxies has been or will be borne by the Company.

 

VOTING INFORMATION

 

All shareholders are advised to carefully read the voting instructions below that are applicable to them.

 

VIRTUAL ONLY MEETING

 

Due to restrictions relating the Global COVID-19 pandemic, and to mitigate risks to the health and safety of our communities, shareholders, employees and other stakeholders, Largo is holding the Meeting as a completely virtual meeting, which will be conducted via live webcast, where all shareholders regardless of geographic location and equity ownership will have an equal opportunity to participate at the Meeting and engage with Largo as well as other shareholders. Shareholders will not be able to attend the Meeting in person.

 

WHO CAN VOTE

 

The record date for the Meeting is January 25, 2021 (the “Record Date”).

 

Our transfer agent has prepared a list, as of the close of business on the Record Date, of the registered holders of Common Shares. A holder of Common Shares whose name appears on such list is entitled to vote the Common Shares on such list at the Meeting online at http://web.lumiagm.com/294318491, or any postponement or adjournment thereof. No person becoming a shareholder after the Record Date shall be entitled to receive notice of, or to vote at, the Meeting or any postponement or adjournment thereof.

 

Each Common Share entitles the holder to one vote on each item of business identified in the Notice of Meeting.

 

VOTING YOUR COMMON SHARES AT THE MEETING

 

Registered Shareholders

 

You are a registered shareholder if your Common Shares are registered directly in your name.

 

3

 

If you were a registered shareholder on the Record Date, you may attend, participate and vote at the Meeting online at http://web.lumiagm.com/294318491 or give another person authority to represent you and vote your Common Shares at the Meeting online, as described below under the heading “Voting Your Common Shares by Proxy”.

 

Non-registered shareholders (being shareholders who hold their Shares through a broker, investment dealer, bank, trust company, custodian, nominee or other intermediary) who have not duly appointed themselves as proxyholder will be able attend the Meeting as guests, however they will not be able to vote at the Meeting. If you are a non-registered shareholder and wish to vote at the Meeting, you have to appoint yourself as proxyholder, by inserting your own name in the space provided on the voting instruction form sent to you and must follow all of the applicable instructions provided by your intermediary. See “Voting Your Common Shares By Proxy — Appointing a Proxyholder”, and “Attending and Participating at the Meeting” below.

 

Beneficial Shareholders

 

It is possible that your Common Shares may be registered in the name of an intermediary, which is usually a trust company, securities broker or other financial institution. If your Common Shares are registered in the name of an intermediary, you are a beneficial shareholder. Your intermediary is entitled to vote the Common Shares held by it and beneficially owned by you on the Record Date. However, it must first seek your instructions as to how to vote your Common Shares or otherwise make arrangements so that you may vote your Common Shares directly. An intermediary is not entitled to vote the Common Shares held by it without written instructions from the beneficial owner. You may vote your Common Shares through your intermediary, or in person at the Meeting online at http://web.lumiagm.com/294318491 by taking the appropriate steps, which are the same for non-objecting beneficial owners (“NOBOs”) and objecting beneficial owners (“OBOs”) of Common Shares. You are an OBO if you have not allowed your intermediary to disclose your ownership information to us. You are a NOBO if you have provided instructions to your intermediary to disclose your ownership information to us.

 

Non-registered beneficial shareholders who have not duly appointed themselves as proxyholder will be able attend the Meeting as guests, however they will not be able to vote at the Meeting.

 

NOBOs and OBOs should carefully review the instructions provided to them by their intermediary regarding how to provide voting instructions or how to obtain a proxy with respect to their Common Shares. Such shareholders may also wish to contact their intermediary directly in order to obtain instructions regarding how to vote Common Shares that they beneficially own.

 

Please note that if you are a NOBO or an OBO and you wish to attend the Meeting, you will not be recognized at the Meeting for the purpose of voting Common Shares registered in the name of an intermediary unless you appoint yourself as a proxyholder, you will only be permitted to attend the Meeting as a guest. In order to do this, you should follow the instructions on the voting instruction form (“VIF”) and, in so doing, specify your own name as the person whom you are appointing as proxy for the purposes of voting your Common Shares. You are reminded that any voting instructions should be communicated to your intermediary in accordance with the procedures set out in the VIF well in advance of the deadline for the receipt of proxies.

 

Attending and Participating at the Meeting

 

The Company is holding the Meeting as a completely virtual meeting, which will be conducted via live webcast. Shareholders will not be able to attend the Meeting in person. In order to attend, participate or vote at the Meeting (including for voting and asking questions at the Meeting), shareholders MUST have a valid Username.

 

Registered shareholders and duly appointed proxyholders will be able to attend, participate and vote at the Meeting online at http://web.lumiagm.com/294318491. Such persons may then enter the Meeting by clicking “I have a login” and entering a Username and Password before the start of the Meeting:

 

·                  Registered shareholders: The control number located on the form of proxy or in the email notification you received is the Username. The Password to the Meeting is “largo2021” (case sensitive).

 

If as a registered shareholder you are using your control number to login to the Meeting and you accept the terms and conditions, you will be revoking any and all previously submitted proxies for the Meeting and will be provided

 

4

 

the opportunity to vote by online ballot on the matters put forth at the Meeting. If you do not wish to revoke a previously submitted proxy, do not accept the terms and conditions, in which case you may enter the Meeting as a guest.

 

·                  Duly appointed proxyholders: The person you appoint as proxyholder MUST contact TSX Trust Company at TMXEInvestorServices@tmx.com to request a control number to be represented or voted at the Meeting. TSX Trust Company will also provide the proxyholder with a Username by e-mail after the voting deadline has passed. The Password to the Meeting is “largo2021” (case sensitive). Without the control number, proxyholders will not be able to participate at the meeting.

 

Only registered shareholders and duly appointed proxyholders will be entitled to participate and vote at the Meeting. Non-registered shareholders who have not duly appointed themselves as proxyholder will be able attend the Meeting as guests, however they will not be able to participate or vote at the Meeting. Non-registered shareholders that wish to attend the Meeting as a guest should select “I am a guest” and complete the online form.

 

Shareholders who wish to appoint a third party proxyholder to represent them at the Meeting (including non-registered shareholders who wish to appoint themselves as proxyholder to attend, participate or vote at the Meeting) MUST submit their duly completed proxy or voting instruction form AND register the proxyholder. See “Appointing a Proxyholder”  below.

 

If you attend the Meeting online, it is important that you are connected to the internet at all times during the Meeting in order to vote when balloting commences. It is your responsibility to ensure connectivity for the duration of the Meeting. You should allow ample time to check into the Meeting online and complete the related procedure.

 

VOTING YOUR COMMON SHARES BY PROXY

 

You may vote before the Meeting by completing the enclosed form of proxy or VIF. A proxy or VIF must be properly completed in writing, in accordance with the instructions provided therein, and must be executed by you or by your attorney authorized in writing.

 

Deadline for Proxies

 

Any proxy to be used at the Meeting must be received by Largo’s transfer agent, TSX Trust Company (“TSX Trust”), prior to 11:00 a.m. (Toronto time) on February 25, 2021, or 48 hours (excluding Saturdays, Sundays and holidays) before any postponement or adjournment of the Meeting. Late proxies may be accepted or rejected by the chair of the Meeting in his or her discretion, and the chair of the meeting is under no obligation to accept or reject any particular late proxy.

 

Registered shareholders may provide their voting instructions by any of the following means:

 

·           by mail, to TSX Trust Company, at 100 Adelaide Street W., Ste. 301, Toronto, ON, M5H 4H1 (a pre-addressed return envelope is enclosed);

 

·           by hand or by courier to TSX Trust Company, at 100 Adelaide Street W., Ste. 301, Toronto, ON, M5H 4H1;

 

·           by fax to +1 416-595-9593; or

 

·           by internet at www.voteproxyonline.com, using your 12 digit control number which can be found on your proxy.

 

Beneficial shareholders may provide their voting instructions by mail, by telephone or online by following the instructions in the enclosed VIF.

 

Your Proxy Vote

 

On the form of proxy, you can indicate how you want to vote your Common Shares, or you can let your proxyholder decide for you.

 

5

 

All Common Shares represented by properly completed proxies received by Largo’s transfer agent, TSX Trust, no later than 11:00 a.m. (Toronto time) on February 25, 2021, or 48 hours (excluding Saturdays, Sundays and holidays) before any postponement or adjournment of the Meeting will be voted or withheld from voting, in accordance with your instructions as specified in the proxy, on any ballot votes that take place at the Meeting. Late proxies may be accepted or rejected by the chair of the Meeting in his or her discretion, and the chair of the meeting is under no obligation to accept or reject any particular late proxy.

 

If you give directions on how to vote your Common Shares on your form of proxy, your proxyholder must vote your Common Shares according to your instructions. If you have not specified how to vote on a particular matter on your form of proxy, your proxyholder can vote your Common Shares as he or she sees fit. If neither you nor your proxyholder gives specific instructions, your Common Shares will be voted as follows:

 

·                  FOR the special resolution authorizing the Board to effect a consolidation of the outstanding Common Shares within a range of one post-consolidation Common Share for up to every ten (10) pre-consolidation Common Shares.

 

Appointing a Proxyholder

 

A proxyholder is the person you appoint to act on your behalf at the Meeting (including any postponement or adjournment of the Meeting) and to vote your Common Shares. You may choose anyone to be your proxyholder, including someone who is not a shareholder of Largo. Simply fill in the proxyholder’s name in the blank space provided on the enclosed form of proxy. If you leave the space in the form of proxy blank, the persons designated in the form, who are our Chief Executive Officer and Chief Financial Officer, are appointed to act as your proxyholder.

 

The following applies to shareholders who wish to appoint a person (a “third party proxyholder”) other than the management nominees set forth in the form of proxy or voting instruction form as proxyholder, including non-registered shareholders who wish to appoint themselves as proxyholder to attend, participate or vote at the Meeting.

 

Shareholders who wish to appoint a third party proxyholder to attend, participate or vote at the Meeting as their proxy and vote their Common Shares MUST submit their proxy or voting instruction form (as applicable) appointing such third party proxyholder AND register the third party proxyholder, as described below. Registering your proxyholder is an additional step to be completed AFTER you have submitted your proxy or voting instruction form. Failure to register the proxyholder will result in the proxyholder not receiving a Username to attend, participate or vote at the Meeting.

 

·                  STEP 1: Submit your proxy or voting instruction form: To appoint a third party proxyholder, insert such person’s name in the blank space provided in the form of proxy or voting instruction form (if permitted) and follow the instructions for submitting such form of proxy or voting instruction form. This must be completed prior to registering such proxyholder, which is an additional step to be completed once you have submitted your form of proxy or voting instruction form.

 

·                  STEP 2: Register your proxyholder: The person you appoint as proxyholder MUST contact TSX Trust at TMXEInvestorServices@tmx.com to request a control number to be represented or voted at the Meeting. TSX Trust will also provide the proxyholder with a Username by e-mail after the voting deadline has passed. The Password to the Meeting is “largo2021” (case sensitive). Without the control number, proxyholders will not be able to participate at the meeting. It is the responsibility of the shareholder to advise their proxy (the person they appoint) to contact TSX Trust to request a control number.

 

If you are a non-registered shareholder and wish to attend, participate and vote at the Meeting, you have to insert your own name in the space provided on the voting instruction form sent to you by your intermediary, follow all of the applicable instructions provided by your intermediary AND register yourself as your proxyholder, as described above. By doing so, you are instructing your intermediary to appoint you as proxyholder. It is important that you comply with the signature and return instructions provided by your intermediary. Please also see further instructions above under the heading “Voting Your Common Shares at the Meeting — Attending and Participating at the Meeting”.

 

If you are a non-registered shareholder and you have not appointed yourself as proxy, and wish to attend the Meeting as a guest only, you should select “I am a guest” and complete the online form in order to attend the Meeting.

 

6

 

Revoking Your Proxy

 

If you submit a form of proxy, you may revoke it at any time before it is used by doing any one of the following:

 

·                  you may send another form of proxy with a later date to our transfer agent, TSX Trust, but it must reach the transfer agent no later than 11:00 a.m. (Toronto time) on February 25, 2021 or 48 hours (excluding Saturdays, Sundays and holidays) before any postponement or adjournment of the Meeting;

 

·                  you may deliver a signed written statement, stating that you want to revoke your form of proxy, to our Chief Financial Officer no later than the last business day preceding the Meeting or any postponement or adjournment of the Meeting, at 55 University Avenue, Suite 1105, Toronto, ON M5J 2H7 or by facsimile at 416 862-7661; or

 

·                  you may revoke your form of proxy in any other manner permitted by law.

 

If as a registered shareholder you are using your control number to login to the Meeting and you accept the terms and conditions, you will be revoking any and all previously submitted proxies and will be provided the opportunity to vote by online ballot on the matters put forth at the Meeting. If you do not wish to revoke a previously submitted proxy, do not accept the terms and conditions, in which case you may enter the Meeting as a guest.

 

If you are a non-registered shareholder and wish to revoke previously provided voting instructions, you should follow carefully the instructions provided by your intermediary.

 

Late proxies may be accepted or rejected by the chair of the Meeting in his or her discretion, and the chair of the meeting is under no obligation to accept or reject any particular late proxy.

 

ADDITIONAL MATTERS PRESENTED AT THE MEETING

 

The enclosed form of proxy or VIF confers discretionary authority upon the persons named as proxyholders therein with respect to any amendments or variations to the matters identified in the Notice of Meeting and with respect to further or other matters that may properly come before the Meeting or any postponement or adjournment thereof. Our management is not aware of any matters to be considered at the Meeting other than the matters described in the Notice of Meeting, or any amendments or variations to the matters described in such notice.

 

If you sign and return the form of proxy and do not appoint a proxyholder by filling in a name, Largo representatives named as proxies will vote in their best judgment.

 

If you sign and return the voting instruction form, your Common Shares will be voted in accordance with your instructions and, with respect to any matter presented at the Meeting, or at any postponement or adjournment thereof, in addition, or as an amendment or variation to the matters described in the Notice of Meeting, in accordance with the discretionary authority provided therein.

 

VOTING SHARES AND PRINCIPAL HOLDERS

 

The Common Shares are the only shares which entitle shareholders to vote at the Meeting. The holders of Common Shares are entitled to one vote per share. The attendance of at least two people holding or representing by proxy at least 10% of the total number of votes attached to the issued Common Shares entitled to vote at the Meeting is necessary for a quorum at the Meeting.

 

As at January 25, 2021, 595,217,826 Common Shares were issued and outstanding

 

To the knowledge of the directors and executive officers of Largo, based upon filings made with Canadian securities regulators on or before the date of this Circular, other than as described below, no other persons beneficially own, or control or direct, directly or indirectly, voting securities carrying 10% or more of the voting rights attached to any class of our voting securities.

 

7

 

Mr. Alberto Arias, a director of Largo, is the sole director of each of the general partners of Arias Resource Capital Fund II L.P. and Arias Resource Capital Fund II (Mexico) L.P. which, as at the date of this Circular, in aggregate beneficially own 233,202,763 of our Common Shares representing approximately 39% of our outstanding Common Shares. Mr. Arias also owns, directly, 98,000 Common Shares representing approximately 0.02% of our outstanding Common Shares. Our remaining directors and executive officers, as a group, beneficially own or control or direct, directly or indirectly, less than 1% of our outstanding Common Shares.

 

MATTERS TO BE ACTED UPON AT THE MEETING

 

CONSOLIDATION OF COMMON SHARES

 

At the Meeting, shareholders will be asked to consider for approval, with or without amendment, a special resolution (the “Share Consolidation Resolution”) to authorize the Company to amend its articles to consolidate the outstanding Common Shares based on a ratio of one post-consolidation Common Share for up to every ten (10) pre-consolidation Common Shares (the “Share Consolidation”) held, with the precise share consolidation ratio and timing of implementation of the Share Consolidation to be determined by the Board, in its sole discretion. The Share Consolidation Resolution will confer discretion on the Board to implement the Share Consolidation until March 31, 2022.

 

If the Share Consolidation Resolution is approved, the Share Consolidation would only be implemented, if at all, upon a determination by the Board that it is in the best interests of the Company and its shareholders, at that time. The Board’s determination as to the specific ratio will be based primarily on the trading price of the Common Shares on the TSX at the given time and expected stability of the trading price of the Common Shares following the Share Consolidation.

 

Background and Reasons for the Share Consolidation

 

The Board is seeking authority to implement the Share Consolidation because it believes that the resultant increase to the trading price of the Common Shares from effecting the Share Consolidation could potentially, and principally, (i) broaden the pool of investors that may consider investing or be able to invest in the Company, and (ii) enable the Company to satisfy certain minimum trading price requirements of senior stock exchanges in the United States for a potential listing of the Company’s Common Shares.

 

The Company anticipates that the Share Consolidation may result in certain additional ancillary benefits. Achieving a higher market price for the Common Shares through the Share Consolidation could enhance the Company’s comparability against its peers on per share metrics, as well as minimizing price volatility of the Common Shares. The Share Consolidation may also make the Common Shares eligible for inclusion in certain stock market indices which have minimum share price requirements which could in turn attract investments from index tracking funds. It could also attract investors whose internal investment policies prohibit or discourage them from purchasing stocks trading below a certain minimum price. The Share Consolidation may also increase analyst and broker interest as policies governing analysts and brokers may discourage following or recommending companies with lower stock prices. In addition, many brokerage houses and institutional investors have internal policies and practices that either prohibit them from investing in lower-priced stocks or tend to discourage individual brokers from recommending lower-priced stocks to their customers, in part because processing of trades in lower-priced stocks may be economically unattractive.

 

Principal Effects of the Share Consolidation

 

If the Share Consolidation is approved and implemented, its principal effect will be to proportionately decrease the number of issued and outstanding Common Shares by a factor equal to the consolidation ratio selected by the Board. At the close of business on January 25, 2021, the closing price of the Common Shares on the TSX was C$1.94 and there were 595,217,826 Common Shares issued and outstanding. Based on the number of Common Shares currently issued and outstanding, immediately following the completion of the Share Consolidation, for illustrative purposes only, depending on the Share Consolidation ratio selected, the number of Common Shares then issued and outstanding (disregarding any resulting fractional Common Shares) will be as follows:

 

8

 

Share Consolidation Ratio

 

Approximate Percentage
Reduction in Common
Shares Outstanding

 

Common Shares
Outstanding

 

2 : 1

 

50

%

297,608,913

 

4 : 1

 

75

%

148,804,456

 

6 : 1

 

83.33

%

99,202,971

 

8 : 1

 

87.50

%

74,402,228

 

10 : 1

 

90

%

59,521,783

 

 

As the Company currently has an unlimited number of Common Shares authorized for issuance, the Share Consolidation will not have any effect on the number of Common Shares of the Company available for issuance.

 

The Share Consolidation will not materially affect any shareholder’s proportionate voting rights. Each consolidated Common Share outstanding after the Share Consolidation will have the same rights and privileges as the existing Common Shares. The implementation of the Share Consolidation would not affect the total shareholders’ equity of the Company or any components of Shareholders’ equity as reflected on the Company’s financial statements except to change the number of issued and outstanding Common Shares to reflect the Share Consolidation.

 

No fractional Common Shares will be issued in connection with the Share Consolidation and, if a shareholder would otherwise be entitled to receive a fractional Common Share as a result of the Share Consolidation, the number of Common Shares to be received by such shareholder will be rounded up or down to the nearest whole number.

 

The Share Consolidation may result in some shareholders owning “odd lots” of fewer than 100 Common Shares or “mixed lots” of less than even multiples of 100 Common Shares. Odd lot shares (including the odd lot portion of a mixed lot) may be more difficult to sell, and brokerage commissions or other costs of transactions may be higher than the costs of transactions in standard trading units of even multiples of 100 Common Shares (referred to as “board lots”). Further, because public data feeds that display stock market quotes generally include only standard trading units, odd lot orders and the odd lot portions of mixed lot orders are unable to trade against the displayed liquidity and, thus, are not covered by applicable order protection regulations in that require a sale order to be executed at the best available (i.e., highest) bid price. Accordingly, holders selling odd lot shares may do so at a price that is lower than the quoted bid price and may have a reduced ability to ascertain whether or not they are getting the best available price when selling their shares.

 

Upon the Share Consolidation becoming effective, the exercise prices and the number of Common Shares issuable upon the exercise or deemed exercise of any stock options or other convertible or exchangeable securities of the Company will be automatically adjusted based on the consolidation ratio selected by the Board.

 

The Board has considered these potential effects, as well as its understanding of the procedures that have been put in place by the TSX for the execution of odd lot orders, and believes that holders wishing to sell their odd lot holdings should be able to do so without significant difficulty and that any disadvantages that may be experienced by such holders will be outweighed by the anticipated benefits of the Share Consolidation.

 

Regulatory Approvals

 

The Share Consolidation is subject to regulatory approval, including approval of the TSX, at the time of the proposed consolidation. As a condition to the approval of a consolidation of shares listed for trading on the TSX, the TSX requires, among other things, that the Company must meet, post-Share Consolidation, the continued listing requirements contained in Part VII of the TSX Company Manual. The Share Consolidation is not expected to adversely impact the Company’s ability to meet the continued listing requirements under the TSX Company Manual.

 

If the Share Consolidation Resolution is approved, the Board will determine when and if the articles of amendment giving effect to the Share Consolidation would be filed, if at all, and shall determine the share consolidation ratio. No further action on the part of shareholders would be required in order for the Board to implement the Share Consolidation.

 

9

 

Notwithstanding approval of the proposed Share Consolidation by shareholders of the Company, the Board, in its sole discretion, may delay implementation of the Share Consolidation or revoke the Share Consolidation Resolution and abandon the Share Consolidation without further approval or action by or prior notice to shareholders.

 

Share Certificates Upon Implementation of Share Consolidation

 

In connection with the due implementation of the Share Consolidation, following the public announcement by the Company of the effective date of the Share Consolidation registered Shareholders will be sent a transmittal letter by the Company’s transfer agent, TSX Trust Company, containing instructions on how to exchange their share certificates representing pre-Share Consolidation Common Shares for new share certificates representing post-Share Consolidation Common Shares. Non-registered shareholders (being shareholders who hold their Shares through a broker, investment dealer, bank, trust company, custodian, nominee or other intermediary) should note that such intermediaries may have different procedures for processing the Share Consolidation than those that will be put in place by the Company for registered shareholders. If you hold your Common Shares with an intermediary and if you have any questions in this regard, you are encouraged to contact them directly. The Company’s transfer agent will forward to each registered shareholder who has sent the required documents a new share certificate representing the number of post-Share Consolidation Common Shares to which the shareholder is entitled. Until surrendered, each share certificate representing pre-Share Consolidation Common Shares will be deemed for all purposes to represent the number of whole post-Share Consolidation Common Shares, to which the holder is entitled as a result of the Share Consolidation. Shareholders should not destroy any certificate(s) representing their Common Shares and should not submit any share certificate(s) until requested to do so.

 

Risk Factors Associated with the Share Consolidation

 

Decline in Market Capitalization

 

There are numerous factors and contingencies that could affect the prices of pre-Share Consolidation Common Shares and the post-Share Consolidation Common Shares, including the Company’s reported financial results in future periods, and general economic, geopolitical, stock market and industry conditions. Accordingly, the market price of the post consolidation Common Shares may not be sustainable at the direct arithmetic result of the Share Consolidation, and may be lower. If the market price of the post-Share Consolidation Common Shares is lower than it was before the Share Consolidation on an arithmetic equivalent basis, the Company’s total market capitalization (the aggregate value of all Common Shares at the then market price) after the Share Consolidation may be lower than before the Share Consolidation.

 

Potential for Adverse Effect on the Liquidity of the Common Shares

 

If the Share Consolidation is implemented and the market price of the post-Share Consolidation Common Shares declines, then the percentage decline may be greater than would occur in the absence of the Share Consolidation. The market price of the post-Share Consolidation Common Shares will, however, also be based on the Company’s performance and other factors, which are unrelated to the number of Common Shares outstanding. Furthermore, the liquidity of the post-Share Consolidation Common Shares could be adversely affected by the reduced number of consolidated Common Shares that would be outstanding after the Share Consolidation. These are only some of the risks associated with the Share Consolidation.

 

Tax Considerations

 

SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE TAX CONSEQUENCES OF THE SHARE CONSOLIDATION TO THEM, INCLUDING THE EFFECTS OF ANY CANADIAN OR U.S. FEDERAL, STATE AND LOCAL, FOREIGN AND OTHER TAX LAWS.

 

Implementation Procedures

 

If the Share Consolidation Resolution is approved by the shareholders and the Board decides to implement the Share Consolidation, the Company will file articles of amendment with the Director under the Business Corporations Act (Ontario) (the “OBCA”) in the form prescribed by the OBCA to amend the Company’s articles of amendment. The Share Consolidation will become effective as specified in the articles of amendment and the certificate of amendment issued by the Director under the OBCA.

 

10

 

No Dissent Rights

 

Sections 168(1)(h) and (5) of the OBCA require that the shareholders of a corporation approve by special resolution to change the shares of any class or series, whether issued or unissued, into a different number of shares of the same class or series or into the same or a different number of shares of other classes or series. Under the OBCA, shareholders do not have dissent and appraisal rights with respect to the proposed Share Consolidation.

 

Shareholder Approval

 

The Share Consolidation Resolution is a special resolution requiring approval of at least two-thirds (i.e., 66 2/3 %) of the votes cast at the Meeting, whether in person, by proxy or otherwise. The Board unanimously recommends that shareholders of the Company vote FOR the Share Consolidation Resolution.

 

At the Meeting, shareholders will be asked to approve the Share Consolidation Resolution as set forth below:

 

“BE IT RESOLVED AS A SPECIAL RESOLUTION THAT:

 

1.                                   the Company is hereby authorized to consolidate all of the issued and outstanding common shares of the Company (the “Common Shares”) on the basis of a ratio of one post-consolidation Common Share for up to every ten (10) outstanding pre-consolidation Common Shares, with such ratio to be determined by the board of directors of the Company, in its sole discretion, with any resulting fractional Common Shares to be either rounded up or down to the nearest whole Common Share;

 

2.                                   the effective date of such consolidation shall be the date shown in the certificate of amendment issued by the Director appointed under the Business Corporations Act (Ontario) or such other date indicated in the articles of amendment provided that, in any event, such date shall be on or before March 31, 2022;

 

3.                                   any one (1) director or officer of the Company is hereby authorized to execute and file the articles of amendment of the Company with the Ministry of Government Services (Ontario), and to execute and deliver all such other documents and to do all such acts that such director or officer may deem to be necessary to give effect to the foregoing; and

 

4.                                   notwithstanding this approval of the shareholders of the Company, the board of directors of the Company may, in its sole discretion, revoke this resolution before it is acted upon without further approval of such shareholders.”

 

The persons named in the accompanying form of proxy intend to vote FOR the special resolution approving the Share Consolidation.

 

INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON

 

None of our directors or executive officers are aware of any material interest, direct or indirect, by way of beneficial ownership of securities or otherwise of any person who: (i) has been a director or executive officer of Largo at any time since January 1, 2020, or (ii) is an associate or affiliate of any person described in (i), in any of the matters to be acted upon at the Meeting other than the election of directors or the appointment of auditors.

 

INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS

 

As at the date of this Circular and during the financial year ended December 31, 2019, no director or executive officer of the Company (and each of their associates) was indebted, including under any securities purchase or other program, to (i) the Company or any of its subsidiaries, or (ii) any other entity which is, or was at any time during the financial year ended December 31, 2019, the subject of a guarantee, support agreement, letter of credit or other similar arrangement or understanding provided by the Company or any of its subsidiaries.

 

INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS

 

No informed person (as such term is defined under applicable securities laws) of the Company (and any of their associates and affiliates) has had any material interest, direct or indirect, in any transaction since January 1, 2020 or in any proposed

 

11

 

transaction which has materially affected or would materially affect the Company or any of its subsidiaries other than as disclosed herein.

 

WHERE YOU CAN FIND ADDITIONAL INFORMATION

 

We file reports and other information with the Canadian Securities Administrators. These reports and information are available to the public free of charge on SEDAR at www.sedar.com. Financial information is provided in our audited consolidated financial statements and management’s discussion and analysis which can be found on SEDAR at www.sedar.com. Shareholders may also request copies of these documents from our Senior Manager of External Relations by telephone at +1 (416) 861 9797 or by e-mail at aguthrie@largoresources.com.

 

12

 

DIRECTORS’ APPROVAL

 

The contents of this Circular and the sending thereof to our shareholders have been approved by the board of directors of Largo Resources Ltd.

 

By Order of the Board of Directors

 

 

 

 

 

(signed) “Paulo Misk”

 

Director, President and

 

Chief Executive Officer

 

 

 

January 25, 2021

 

 

13

 

 

Corporate Office

55 University Avenue, Suite 1105

Toronto, ON Canada M5J 2H7

 

T: +1 416 861 9797

 

Investor Relations

Alex Guthrie

Senior Manager, External Relations

 

T: +1 416 861 9797

E: info@largoresources.com

 

Transfer Agent
TMX Trust

100 Adelaide Street West

Suite 301

Toronto, ON M5H 4H1

 

T: +1 866 600 5869 +1 416 342 1091

E: TMXEInvestorServices@tmx.com

W: www.tsxtrust.com

 

Auditors

PricewaterhouseCoopers LLP

 

Legal Counsel

Gowling WLG (Canada) LLP

 

TSX LGO

OTCQX LGORF

 

www.largoresources.com
www.largoVPURE.com

www.largocleanenergy.com

 

EXHIBIT 99.56

 

 

LARGO RESOURCES LTD.

 

NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS

 

NOTICE IS HEREBY GIVEN that a special meeting (the “Meeting”) of the holders of common shares (“Shares”) of Largo Resources Ltd. (“Largo”) will be held by way of live webcast on March 1, 2021 at 11:00 a.m. (Toronto time), for the following purposes:

 

1.                                      to consider and, if deemed advisable, pass, with or without variation, a special resolution approving an amendment to the articles of incorporation of Largo to consolidate its outstanding common shares on the basis of a ratio to be determined by the board of directors of Largo, in its sole discretion, within a range of one post-consolidation common share of the Company for up to every ten (10) pre-consolidation common shares of Largo, as more particularly described in the Circular; and

 

2.                                      to transact such further or other business as may properly come before the Meeting or any postponement(s) or adjournment(s) thereof.

 

The specific details of the matters to be considered at the Meeting are set forth in the accompanying management information circular.

 

Due to restrictions relating the Global COVID-19 pandemic, and to mitigate risks to the health and safety of our communities, shareholders, employees and other stakeholders, Largo is holding the Meeting as a completely virtual meeting, which will be conducted via live webcast, where all shareholders regardless of geographic location and equity ownership will have an equal opportunity to participate at the Meeting and engage with Largo as well as other shareholders. Shareholders will not be able to attend the Meeting in person.

 

Registered shareholders (being shareholders who hold their Shares directly, registered in their own names) and duly appointed proxyholders will be able to attend, participate and vote at the Meeting online at http://web.lumiagm.com/294318491. Non-registered shareholders (being shareholders who hold their Shares through a broker, investment dealer, bank, trust company, custodian, nominee or other intermediary) who have not duly appointed themselves as proxyholder will be able attend the Meeting as guests, however they will not be able to vote at the Meeting. The password to the Meeting is “largo2021” (case sensitive).

 

As a shareholder of Largo, it is very important that you read the accompanying management information circular dated January 25, 2021 (the “Circular”) and other Meeting materials carefully. They contain important information with respect to voting your Shares and attending and participating at the Meeting.

 

A shareholder who wishes to appoint a person other than the management nominees identified on the form of proxy or voting instruction form, to represent him, her or it at the Meeting may do so by inserting such person’s name in the blank space provided in the form of proxy or voting instruction form and following the instructions for submitting such form of proxy or voting instruction form. This MUST be completed prior to registering such proxyholder, which is an additional step to be completed once you have submitted your form of proxy or voting instruction form. If you wish that a person other than the management nominees identified on the form of proxy or voting instruction form attend and participate at the Meeting as your proxy and vote your Shares, including if you are a non-registered shareholder and wish to appoint yourself as proxyholder to attend, participate and vote at the Meeting, you MUST register such proxyholder after having submitted your form of proxy or voting instruction form identifying such proxyholder by 11:00 a.m.

 

 

(Toronto time) on February 25, 2021. Failure to register the proxyholder will result in the proxyholder not receiving a Username to participate in the Meeting. Without a Username, proxyholders will not be able to attend, participate or vote at the Meeting. In order to register a proxyholder, whether yourself or a third party, shareholders MUST email TSX Trust Company (“TSX Trust”) at tmxeinvestorservices@tmx.com with their proxyholder’s contact information, so that TSX Trust may provide the proxyholder with a Username via email.

 

If you are a registered shareholder and are unable to attend the Meeting online please date and execute the accompanying form of proxy and return it in the envelope provided to TSX Trust, Largo’s transfer agent, at 100 Adelaide Street W., Ste. 301, Toronto, ON, M5H 4H1 by no later than 11:00 a.m. (Toronto time) on February 25, 2021 or 48 hours (excluding Saturdays, Sundays and holidays) before any postponement or adjournment of the Meeting.

 

If you are not a registered shareholder and receive these materials through your broker or through another intermediary, please complete and return the form of proxy in accordance with the instructions provided to you by your broker or by the other intermediary.

 

Largo’s directors have fixed January 25, 2021 as the record date. Holders of Shares at the close of business on January 25, 2021 are entitled to receive notice of and to vote at the Meeting or any postponement(s) or adjournment(s) thereof.

 

DATED at Toronto, Ontario this 25th day of January, 2021.

 

By Order of the Board of Directors

 

 

(Signed) “Paulo Misk”

 

Director, President and

 

Chief Executive Officer

 

 

Exhibit 99.57

 

Largo Resources Announces Full Repayment of its Outstanding Debt

 

All amounts expressed are in U.S. dollars, denominated by “$”

 

TORONTO—(BUSINESS WIRE)—February 8, 2021—Largo Resources Ltd. (“Largo” or the “Company”) (TSX: LGO) (OTCQX: LGORF) is pleased to announce that it has prepaid in full all of its outstanding credit facilities in Brazil that were scheduled to mature on March 12 and March 18, 2021, respectively.

 

The Company completed the prepayment of $24.8 million in aggregate principal amount between the dates of January 29 and February 3, 2021, plus accrued and unpaid interest and all exit fees which were paid at a lower rate than the scheduled interest payable to the end of the maturity dates.

 

Paulo Misk, President and Chief Executive Officer of Largo, stated: “Largo’s financial position remains strong following the full repayment of the Company’s outstanding credit facilities. After a successful transition year in 2020, which included bringing sales and trading in-house whilst navigating the impacts of the global COVID-19 pandemic, Largo has built up its working capital position to a normalized level and the Company accordingly deemed the credit facilities surplus to its liquidity needs. The Company is now debt-free and we look forward to advancing our strategic growth initiatives with Largo Clean Energy in addition to further fortifying our position as the industry leading source of high-quality vanadium with our VPURETM and VPURE+TM products.” He continued: “We expect 2021 to be an exceptional year for the Company as we look to deliver on our increased annual production and sales targets. Additionally, vanadium prices continue to strengthen in all main markets on the back of robust demand and low inventories. We also believe that the fast-growing renewable energy storage market is expected to significantly drive additional demand growth of vanadium redox flow batteries in the years to come.”

 

About Largo Resources

 

Largo Resources is an industry preferred producer and supplier of high-quality vanadium. Largo can service multiple vanadium market applications through the supply of its unrivaled VPURETM and VPURE+TM products, which are sourced from one of the world’s highest-grade vanadium deposits at the Company’s Maracás Menchen Mine located in Brazil. Largo is also focused on the advancement of renewable energy storage solutions through Largo Clean Energy and its world-class VCHARGE± vanadium redox flow battery technology. The Company’s common shares are listed on the Toronto Stock Exchange under the symbol “LGO”.

 

For more information on Largo and VPURETM, please visit www.largoresources.com and www.largoVPURE.com.

 

For additional information on Largo Clean Energy, please visit www.largocleanenergy.com.

 

Neither the Toronto Stock Exchange (nor its regulatory service provider) accepts responsibility for the adequacy or accuracy of this press release.

 

 

Forward-looking Information:

 

This press release contains forward-looking information under Canadian securities legislation, some of which may be considered “financial outlook” for the purposes of application Canadian securities legislation (“forward-looking statements”). Forward-looking information in this press release includes, but is not limited to, statements with respect to the timing and amount of estimated future production and sales; costs of future activities and operations; the extent of capital and operating expenditures; and the extent and overall impact of the COVID-19 pandemic in Brazil and globally. Forward-looking information in this press release also includes, but is not limited to, statements with respect to our ability to build, finance and operate a VRFB business, our ability to protect and develop our technology, our ability to maintain our IP, our ability to market and sell our VCHARGE± battery system on specification and at a competitive price, our ability to secure the required production resources to build our VCHARGE± battery system, and the adoption of VRFB technology generally in the market. Forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. All information contained in this news release, other than statements of current and historical fact, is forward looking information. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of Largo or Largo Clean Energy to be materially different from those expressed or implied by such forward-looking statements, including but not limited to those risks described in the annual information form of Largo and in its public documents filed on SEDAR from time to time. Forward-looking statements are based on the opinions and estimates of management as of the date such statements are made. Although management of Largo has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Largo does not undertake to update any forward-looking statements, except in accordance with applicable securities laws. Readers should also review the risks and uncertainties sections of Largo’s annual and interim MD&As which also apply.

 

Contacts

 

Investor Relations:

Alex Guthrie

Senior Manager, External Relations

aguthrie@largoresources.com

Tel: +1 416-861-9797

 

Media Enquiries:

Crystal Quast

Bullseye Corporate

Quast@bullseyecorporate.com

Tel: +1 647-529-6364

 

Exhibit 99.58

 

 

TSX TRUST COMPANY

 

VIA ELECTRONIC TRANSMISSION

 

February 8, 2021

 

TO ALL APPLICABLE EXCHANGES AND COMMISSIONS:

 

RE:

LARGO RESOURCES LTD.

 

We are pleased to confirm that copies of the following proxy-related materials were mailed on February 5, 2021 to the Registered Securityholders and to the Non-Objecting Beneficial Owners (“NOBO”):

 

1.                            Proxy - Registered Securityholders

2.                            Voting Instruction Form - NOBOs

3.                            Notice of Meeting Combined with Information Circular

4.                            Lumi Virtual Meeting Insert

5.                            Proxy Return Envelope

 

Yours truly,

TSX Trust Company

 

“Lori Winchester”

Senior Relationship Manager

Lori.Winchester@tmx.com

 

 

Exhibit 99.59

 

Largo Resources Announces Results of its Special Meeting of Shareholders

 

The consolidation of the Company’s issued and outstanding common shares (“Common Shares”) was approved by the Company’s shareholders The Company will release its 2020 annual financial results after the close of market trading on March 17, 2021

 

Shareholder conference call with Paulo Misk, President and CEO, Ernest Cleave, CFO, Paul Vollant, Director of Sales and Trading, and Shazad Butt, VP of Engineering will be conducted at 3:00 p.m. ET on Thursday, March 18, 2021

 

TORONTO—(BUSINESS WIRE)—March 1, 2021—Largo Resources Ltd. (“Largo” or the “Company”) (TSX: LGO) (OTCQX: LGORF) announces voting results from its Special Meeting of Shareholders held on Monday, March 1, 2021 (the “Meeting”).

 

The consolidation of the Company’s Common Shares on the basis of up to one (1) post-consolidation Common Share for every ten (10) pre-consolidation Common Shares (the “Consolidation”) was approved by the Company’s shareholders at the Meeting. A total of 434,131,240 Common Shares were voted at the Meeting representing 72.92% of the Company’s Common Shares as of January 25, 2021, (the “Record Date”).

 

Results of the votes on the Consolidation are as follows:

 

Common Shares
Voted for

 

%

 

Common Shares
Voted Against

 

%

 

Common Shares
Abstained

 

%

 

432,868,875

 

99.71%

 

1,260,965

 

0.29%

 

0

 

0.00%

 

 

For further detailed voting results on the Meeting, please refer to the Company’s Report of Voting Results filed on Largo’s profile at www.sedar.com. Further details of the Consolidation are contained within the Company’s Management Information Circular dated January 25, 2021, which is also available under Largo’s profile on SEDAR. Readers should review the Management Information Circular for the specific terms and conditions of the Consolidation.

 

Annual 2020 Results Conference Call

 

The Company will release its 2020 audited annual financial results on Wednesday, March 17, 2021 after the close of market trading. Additionally, the Company will host a conference call to discuss 2020 operating and financial results on Thursday, March 18, 2021 at 3:00 p.m. ET.

 

Details of the conference call are listed below:

 

Date:

Thursday, March 18, 2021

Time:

3:00 p.m. ET

Dial-in Number:

Local / International: +1 (416) 764-8688

 

North American Toll Free: (888) 390-0546

 

Brazil Toll Free: 08007621359

 

 

Q&A Portal / Audio Only Conference Line: https://produceredition.webcasts.com/starthere.jsp?ei=1438431&tp_key=39b19e657c

 

Q&A Details:

The Company requests all questions be submitted through the online portal link provided above. The ability to submit questions over the phone will not be available during this call.

 

 

Conference ID:

00739969

Replay Number:

Local / International: + 1 (416) 764-8677 North American Toll Free: (888) 390-0541 Replay Passcode: 739969 #

Website

To view press releases or any additional financial information, please visit the Investor Relations section of the Largo Resources website at www.largoresources.com/investors

 

About Largo Resources

 

Largo Resources is an industry preferred producer and supplier of high-quality vanadium. Largo can service multiple vanadium market applications through the supply of its unrivaled VPURETM and VPURE+TM products, which are sourced from one of the world’s highest-grade vanadium deposits at the Company’s Maracás Menchen Mine located in Brazil. Largo is also focused on the advancement of renewable energy storage solutions through Largo Clean Energy and its world-class VCHARGE± vanadium redox flow battery technology. The Company’s common shares are listed on the Toronto Stock Exchange under the symbol “LGO”.

 

For more information on Largo and VPURETM, please visit www.largoresources.com and www.largoVPURE.com.

 

For additional information on Largo Clean Energy, please visit www.largocleanenergy.com.

 

Contacts

 

Investor Relations:

Alex Guthrie

Senior Manager, External Relations

aguthrie@largoresources.com

Tel: +1 416-861-9797

 

Media Enquiries:

Crystal Quast

Bullseye Corporate

Quast@bullseyecorporate.com

Tel: +1 647-529-6364

 

Exhibit 99.60

 

LARGO RESOURCES LTD.

 

Voting Results for the Special Meeting of Shareholders Held on March 1, 2021

 

To: The Applicable Securities Commissions

 

Report of Voting Results

 

In accordance with section 11.3 of National Instrument 51-102 — Continuous Disclosure Obligations, this report briefly describes the matters voted upon and the outcome of the votes at the special meeting of shareholders (the “Meeting”) of Largo Resources Ltd. (the “Corporation”) held by live webcast on March 1, 2021.

 

Consolidation of Common Shares

 

A special resolution (the “Share Consolidation Resolution”) was passed authorizing the Corporation to amend its articles to consolidate the Corporation’s outstanding common shares based on a ratio of one post-consolidation common share for up to every ten (10) pre-consolidation common shares held (the “Share Consolidation”), with the precise consolidation ratio and timing of implementation to be determined by the Corporation’s board of directors. The Share Consolidation Resolution conferred discretion on the board of directors to implement the Share Consolidation until March 21, 2022. The results of the vote were:

 

Outcome

 

Votes For

 

%

 

Votes Against

 

%

Approved

 

432,868,875

 

99.71%

 

1,260,965

 

0.29%

 

Exhibit 99.61

 

Largo Resources Announces Share Consolidation and Application to List on the Nasdaq

 

TORONTO—(BUSINESS WIRE)—March 4, 2021—Largo Resources Ltd. (“Largo” or the “Company”) (TSX: LGO) (OTCQX: LGORF) announces that, the Company, following a determination of its Board of Directors in accordance with the parameters authorized by the Company’s shareholders at the Special Meeting of Shareholders held on March 1, 2021 (the “Meeting”), has filed articles of amendment implementing a consolidation of the Company’s issued and outstanding common shares (“Common Shares”) on the basis of one (1) post- consolidation Common Share for every ten (10) pre-consolidation Common Shares (the “Consolidation”). The Common Shares are expected to commence trading on the Toronto Stock Exchange (the “TSX”) on a post-consolidation basis at the open of trading on March 8, 2021.

 

The Company is also pleased to announce that it has submitted an initial application to list its Common Shares on the Nasdaq Stock Market (the “Nasdaq”), with the view of increasing access to U.S. capital markets and enhancing overall shareholder value.

 

Paulo Misk, President and Chief Executive Officer of Largo, stated: “We are very excited about the prospect of listing on the Nasdaq and the Company’s share consolidation was a crucial step in achieving this. We believe a U.S. listing will benefit our business and shareholders as we seek to further execute on strategically developing our U.S.-based Largo Clean Energy division into an industry-leading, vertically integrated vanadium redox flow battery business.”

 

Share Consolidation Details

 

In connection with the Consolidation, no fractional Common Shares will be issued, and no cash will be paid in lieu of fractional post-consolidation Common Shares. The number of post- consolidation Common Shares to be received by a shareholder will be rounded down to the nearest whole Common Share. The Company’s outstanding options and warrants will also be adjusted on the same basis (1 for 10) as the Common Shares, with proportionate adjustments being made to exercise prices.

 

A letter of transmittal has been mailed to registered shareholders advising that: (i) the Consolidation has taken effect; and (ii) shareholders should surrender their existing share certificates (representing pre-consolidation Common Shares) for replacement share certificates (representing post-consolidation Common Shares). Until surrendered, each existing share certificate will be deemed, for all purposes, to represent the number of Common Shares to which the holder thereof is entitled as a result of the Consolidation. Copies of the letter of transmittal may be obtained from TSX Trust Company, the registrar and transfer agent of the Company, by mail, hand or courier at 100 Adelaide Street West, Suite 301, Toronto, ON M5H 4H1, Attn: Corporate Actions. Any questions should be directed to TSX Trust Company at +1-866-600- 5869 (toll free) or +1-416-342-1091 or by e-mail to TMXEInvestorServices@tmx.com.

 

Non-registered shareholders of the Company holding their Common Shares through a bank, broker or other nominee should note that such banks, brokers or other nominees may have different procedures for processing the Consolidation than those that will be put in place by the Company for registered shareholders. If you hold your Common Shares with such a bank, broker or other nominee and if you have any questions in this regard, you are encouraged to contact your nominee.

 

 

When the Common Shares commence trading on a post-consolidation basis, the CUSIP and ISIN numbers of the Common Shares will change to 517103602 and CA5171036026 respectively, however, the Company’s name and trading symbol will not change. Further details of the Consolidation are contained within the Company’s Management Information Circular dated January 25, 2021 (the “Circular”), which is be available under Largo’s profile at www.sedar.com. Readers should review the Circular for the specific terms and conditions of the Consolidation.

 

Nasdaq Application Details

 

The listing of the Common Shares on the Nasdaq remains subject to the review and approval of the listing application and the satisfaction of all applicable listing and regulatory requirements, including the filing of a registration statement with and declaration of effectiveness by the United States Securities Exchange Commission. The Company will continue to maintain the listing of its Common Shares on the TSX under the symbol “LGO”.

 

About Largo Resources

 

Largo Resources is an industry preferred producer and supplier of high-quality vanadium. Largo can service multiple vanadium market applications through the supply of its unrivaled VPURE™ and VPURE+™ products, which are sourced from one of the world’s highest-grade vanadium deposits at the Company’s Maracás Menchen Mine located in Brazil. Largo is also focused on the advancement of renewable energy storage solutions through Largo Clean Energy and its world-class VCHARGE± vanadium redox flow battery technology. The Company’s common shares are listed on the Toronto Stock Exchange under the symbol “LGO”.

 

For more information on Largo and VPURE™, please visit www.largoresources.com and www.largoVPURE.com.

 

For additional information on Largo Clean Energy, please visit www.largocleanenergy.com.

 

Forward-looking Information:

 

This press release contains forward-looking information under Canadian securities legislation (“forward-looking statements”). Forward-looking information in this press release includes, but is not limited to, statements with respect to the timing of the trading of the post-Consolidation Common Shares; and the listing of the Common Shares on the Nasdaq.. Forward-looking information in this press release also includes, but is not limited to, statements with respect to our ability to build, finance and operate a VRFB business.. Forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. All information contained in this news release, other than statements of current and historical fact, is forward looking information. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of Largo or Largo Clean Energy to be materially different from those expressed or implied by such forward-looking statements, including but not limited to the receipt of applicable approvals, and those risks described in the annual information form of Largo and in its public documents filed on SEDAR from time to time.

 

 

Forward-looking statements are based on the opinions and estimates of management as of the date such statements are made. Although management of Largo has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Largo does not undertake to update any forward-looking statements, except in accordance with applicable securities laws. Readers should also review the risks and uncertainties sections of Largo’s annual and interim MD&As which also apply.

 

Contacts

 

Investor Relations:

 

Alex Guthrie

Senior Manager, External Relations

aguthrie@largoresources.com

Tel: +1 416-861-9797

 

Media Enquiries:

Crystal Quast

Bullseye Corporate

Quast@bullseyecorporate.com

Tel: +1 647-529-6364

 

Exhibit 99.62

 

LARGO RESOURCES LTD.

 

LETTER OF TRANSMITTAL

 

For use in connection with a share consolidation

 

This letter of transmittal (the “Letter of Transmittal”) is for use by registered holders (“Shareholders”) of common shares (the “Common Shares”) of Largo Resources Ltd. (“Largo” or the “Company”) in connection with the consolidation of the Common Shares on the basis of one (1) post-consolidation Common Share for every ten (10) pre-consolidation Common Shares (the “Share Consolidation”).

 

The Share Consolidation was approved at the special meeting of Shareholders held on March 1, 2021 (the “Meeting”), and the Common Shares are expected to begin trading on a post-consolidation basis on the Toronto Stock Exchange on or about March 8, 2021.

 

For further information relating to the Share Consolidation, Shareholders are encouraged to review the management information circular of the Company dated January 25, 2021 (the “Circular”) delivered in connection with the Meeting. A copy of the Circular is available on the Company’s profile at www.sedar.com.

 

Each Shareholder whose pre-consolidation Common Shares are evidenced through a share certificate (“Certificated Holder”) must forward to the Company’s transfer agent, TSX Trust Company (“TSX Trust”), a properly completed and signed Letter of Transmittal, with accompanying share certificate(s), if applicable, in order to receive the post-consolidation Common Shares to which such Certificated Holder is entitled. Each Shareholder whose pre-consolidation Common Shares are evidenced through a Direct Registration System (“DRS”) advice statement (“DRS Holder”), must forward to TSX Trust a properly completed and signed Letter of Transmittal in order to receive the post-consolidation Common Shares to which such DRS Holder is entitled. The instructions accompanying this Letter of Transmittal specify certain signature guarantees and additional documents that Shareholders may be required to provide with this Letter of Transmittal. Shareholders may, upon request, be required to execute any additional documents deemed by TSX Trust or the Company, at their discretion, to be reasonably necessary or desirable to complete the deposit and cancellation of their existing share certificates or DRS advice statement(s) in exchange for the applicable post-consolidation share certificates or DRS advice statement(s). It is recommended that Shareholders complete, sign and return this Letter of Transmittal, with any accompanying share certificate(s), if applicable, to TSX Trust as soon as practicable following receipt of the Letter of Transmittal by registered mail or courier to: TSX TRUST COMPANY, 301 - 100 Adelaide Street West, Toronto, ON M5H 4H1.

 

Until surrendered, each share certificate representing pre-consolidation Common Shares will be deemed for all purposes to represent the number of whole post-consolidation Common Shares to which such Certificated Holder is entitled as a result of the Share Consolidation. DRS Holders will only be required to submit to TSX Trust a properly completed and signed Letter of Transmittal in accordance with the instructions set out below.

 

No fractional Common Shares will be issued in connection with the Share Consolidation and, if a Shareholder would otherwise be entitled to receive fractional Common Share as a result of the Share Consolidation, the number of Common Shares to be received by such Shareholder will be rounded up or down to the nearest whole number.

 

DO NOT FORWARD SHARE CERTIFICATES OR DRS STATEMENTS TO THE HEAD OFFICE OF THE COMPANY.

 

 

TO:                        LARGO RESOURCES LTD.

 

AND TO:              TSX TRUST COMPANY

 

Please read the instructions accompanying this Letter of Transmittal carefully before completing this Letter of Transmittal. Delivery of this Letter of Transmittal to an address other than as set forth herein will not constitute a valid delivery. If Common Shares are registered in different names, a separate Letter of Transmittal must be submitted for each different Shareholder.

 

PLEASE TYPE OR WRITE LEGIBLY IN BLOCK LETTERS.

 

In connection with the Share Consolidation, (i) the Certificated Holder hereby irrevocably deposits with TSX Trust the enclosed Common Share certificate(s), and/or (ii) the DRS Holder hereby irrevocably deposits with TSX Trust the DRS advice statement(s), for which no delivery to the TSX Trust is required, details of which are as follows, as applicable:

 

Certificate Number or DRS
Account Number

 

Name in which Registered

 

Number of Common Shares
Represented by Certificate or DRS
advice statement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL:

 

 

 

 

(Please print or type. If space is insufficient, please attach a list to this Letter of Transmittal in the above form.)

 

SHAREHOLDER INFORMATION

 

TSX Trust is hereby requested and authorized to issue new certificates/DRS advice statements of Largo on the following basis, namely for every ten (10) pre-consolidation Common Shares, Shareholders shall receive one (1) post-consolidation Common Share. Before signing this Letter of Transmittal, please review carefully and complete the following blocks, as appropriate.

 

2

 

NAME AND NUMBER OF CERTIFICATES/DRS FOR COMMON SHARES

 

Certificate(s)/DRS representing post-consolidation Common Shares are to be issued as follows:

 

BLOCK A — ISSUANCE INSTRUCTIONS

 

Please issue the Certificate(s)/DRS representing the post-Consolidation Common Shares in the name of:

 

BLOCK B — DELIVERY INSTRUCTIONS

 

To be completed ONLY if the Certificates(s) or DRS representing the post-Consolidation Common Shares to which the undersigned is entitled are to be sent to someone other than the person shown in Block A or to an address other than the address shown on Block A

 

o Same as address in Block A or to:

 

 

 

 

(Name — please print or type)

 

(Name — please print or type)

 

 

 

 

(Street Address and Number)

 

(Street Address and Number)

 

 

 

 

(City and Province or State)

 

(City and Province or State)

 

 

 

 

(Country and Postal (or Zip) Code)

 

(Country and Postal (or Zip) Code)

 

 

 

 

(Telephone — Business Hours)

 

(Telephone — Business Hours)

 

 

 

 

(Email Address — if opting to receive DRS advice statement(s))

 

(Email Address — if opting to receive DRS advice statement(s))

 

IMPORTANT NOTE REGARDING DELIVERY: Due to the current COVID-19 pandemic, pick-up at the offices of TSX Trust is not available to the public when the Share Consolidation is effective. If pick-up is not available at such time, TSX Trust will mail the post-consolidation Common Shares deliverable to the Shareholder in accordance with the information provided in Block B or C as applicable. For DRS, if an e-mail address is provided, TSX Trust will e-mail the new DRS advice statements to the e-mail address provided above. Note that the DRS advice statements will not be mailed where an email address is provided.

 

(Please print or type. If space is insufficient, please attach a list to this Letter of Transmittal in the above form. See Instruction 4.)

 

IMPORTANT INFORMATION REGARDING DRS ADVICE STATEMENTS

 

The Company has in place arrangements to allow for the use of TSX Trust’s DRS, as an alternative to sending out traditional paper certificates to holders of Common Shares. DRS is a way of recording security ownership without the need to issue a physical paper share certificates, which may help to eliminate the risk of loss, theft or destruction of certificates. For more information on DRS, please visit TSX Trust’s website at http://www.tsxtrust.com/services/investor-services.

 

3

 

To receive DRS advice statement(s) representing post-consolidation Common Shares in lieu of certificate(s), please check the box in Block C below.

 

BLOCK C — DRS ADVICE STATEMENT OPTION

 

o                                    I wish to use DRS in respect of my post-consolidation Common Shares. Please issue
DRS advice statement(s) in lieu of certificate(s).

 

BLOCK D — SIGNATURE GUARANTEE
(if required under Instruction 7)

 

IMPORTANT:  This block must be completed fully if the name in which any post-consolidation Common Share is to be issued differs from the name of the registered holder appearing on the existing certificate(s).

 

(Authorized Signature)

 

MEDALLION STAMP OR SIGNATURE GUARANTEE

 

 

 

(Name of Guarantor — please print of type)

 

Signature guaranteed by:

 

 

 

 

(Street Address and Number)

 

 

 

 

 

 

(City and Province or State)

 

 

 

 

 

 

(Country and Postal (or Zip) Code)

 

 

 

 

 

 

(Telephone — Business Hours)

 

 

 

IMPORTANT: THIS LETTER OF TRANSMITTAL MUST BE DATED AND SIGNED.

 

Date:

 

 

 

 

 

 

 

 

 

 

 

 

Signature of registered Shareholder or authorized representative

 

Name of registered Shareholder

 

 

 

 

 

 

 

 

 

Name and title of authorized representative, if applicable

 

Daytime telephone number of registered Shareholder or authorized representative

 

4

 

AUTHORIZATION

 

It is understood that, in the case of a Certificated Holder, upon receipt of the share certificate(s) and a properly completed and signed Letter of Transmittal, or in the case of a DRS Holder, upon receipt of a properly completed and signed Letter of Transmittal, in each case representing the Common Shares deposited herewith (the “Deposited Common Shares”) and all other required documents, if any, TSX Trust will deliver share certificate(s) or, if requested by the undersigned, DRS advice statement(s) representing the post-consolidation Common Shares that the undersigned is entitled to receive under the Share Consolidation in accordance with the instructions set out above, and the share certificate(s) and/or DRS advice statement representing the Deposited Common Shares will forthwith be cancelled.

 

The undersigned Shareholder represents, warrants, covenants, acknowledges and agrees in favour of the Company as of the date hereof and as of the date of the Share Consolidation: (i) the undersigned is the registered holder of the Deposited Common Shares; (ii) such Deposited Common Shares are owned by the undersigned free and clear of all mortgages, liens, charges, encumbrances, security interests and adverse claims; (iii) the undersigned has full power and authority to execute and deliver this Letter of Transmittal and to deposit and deliver the Deposited Common Shares for cancellation and exchange for post-consolidation Common Shares pursuant to the Share Consolidation and that none of the Company, or any successor thereto will be subject to any adverse claim in respect of the deposit of such Deposited Common Shares; (iv) the Deposited Common Shares have not been sold, assigned or transferred, nor has any agreement been entered into to sell, assign or transfer any such Deposited Common Shares, to any other person; (v) the surrender of the Deposited Common Shares complies with all applicable laws; (vi) all information inserted by the undersigned into this Letter of Transmittal is complete, true and accurate; (vii) the undersigned will not transfer or permit to be transferred any of such Deposited Common Shares following the deposit hereof; (viii) the undersigned irrevocably constitutes and appoints TSX Trust and any other person designated by the Company in writing, the true and lawful agent, attorney and attorney-in-fact of the undersigned with respect to the Deposited Common Shares and any distributions on such securities with full power of substitution (such power of attorney, being coupled with an interest, being irrevocable) in the name of and on behalf of the undersigned, to register or record the cancellation and exchange of such Deposited Common Shares for post-consolidation Common Shares on the securities register of the Company; (ix) the issuance and delivery of the appropriate number of post-consolidation Common Shares in accordance with the instructions set out above and the information contained in the Circular will completely discharge any and all obligations of the Company and TSX Trust with respect to the matters contemplated by this Letter of Transmittal; and (x) the deposit of Deposited Common Shares pursuant to this Letter of Transmittal is irrevocable. These representations, warranties, covenants, acknowledgements and agreements shall survive the completion of the Share Consolidation.

 

The undersigned agrees that all questions as to validity, form, eligibility (including timely receipt) and acceptance of any pre-consolidation Common Shares shall be determined by the Company in its sole discretion and that such determination shall be final and binding and acknowledges that there is no duty or obligation upon the Company, TSX Trust or any other person to give notice of any defect or irregularity in any such surrender of pre-consolidation Common Shares and no liability will be incurred by any of them for failure to give any such notice.

 

The undersigned revokes any and all authority, other than as granted in this Letter of Transmittal, whether as agent, attorney, attorney-in-fact, proxy or otherwise, previously conferred or agreed to be conferred by the undersigned at any time with respect to the Deposited Common Shares and no subsequent authority, whether as agent, attorney, attorney-in-fact, proxy or otherwise, will be granted with respect to the Deposited Common Shares.

 

The undersigned may, upon request, be required to execute any additional documents deemed by TSX Trust or the Company in their discretion to be reasonably necessary or desirable to complete the deposit and cancellation of the Deposited Common Shares in exchange for the applicable post-consolidation Common Shares contemplated by this Letter of Transmittal. The undersigned hereby acknowledges that the delivery of the Deposited Common Shares shall be effected and the risk of loss of such Deposited Common Shares shall pass only upon proper receipt thereof by TSX Trust.

 

Each authority conferred or agreed to be conferred by the undersigned in this Letter of Transmittal shall survive the death or incapacity of the undersigned and any obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, legal representatives, successors and assigns of the undersigned.

 

The undersigned instructs the Company and TSX Trust to, promptly after receipt of a properly completed and signed Letter of Transmittal, the applicable share certificate(s) and all other required documentation, if any, issue or cause to be issued share certificate(s) or, if requested by the undersigned, DRS advice statement(s) representing the post-

 

5

 

consolidation Common Shares to which the undersigned is entitled pursuant to the Share Consolidation. If a share certificate or DRS advice statement(s) representing Deposited Common Shares has any restrictive legends on the back thereof, the new share certificate or DRS advice statement(s) will be issued with the same restrictive legends, if any.

 

It is understood that, (i) in the case of a Certificated Holder, that they will not receive the post-consolidation Common Shares in respect of the Deposited Common Shares until the share certificate(s) representing the Deposited Common Shares owned by the Certificated Holder are received by TSX Trust at the address set forth on the front and back of this Letter of Transmittal, together with a duly completed and signed Letter of Transmittal and all other required documents, if any, and until the same are processed by TSX Trust; and (ii) in the case of a DRS Holder, that they will not receive the post-consolidation Common Shares in respect of the Deposited Common Shares until a duly completed and signed Letter of Transmittal and all other required documents, if any, are received and processed by TSX Trust.

 

If the Share Consolidation is not completed or does not proceed, the enclosed share certificate(s) representing the Deposited Common Shares shall be returned forthwith to the Certificated Holder in accordance with the delivery instructions in this Letter of Transmittal or failing such address being specified, to the Certificated Holder at the last address of the Certificated Holder as it appears on the register of the Company maintained by TSX Trust.

 

6

 

INSTRUCTIONS

 

1.              Unless defined in this Letter of Transmittal (including the attached instructions), capitalized terms have the meanings given to them in the Circular.

 

2.              Pursuant to the amendment to the articles of Largo, each Shareholder will receive one (1) post-consolidation Common Share for each 10 (ten) pre-consolidation Common Shares held.  No fractional shares will be issued as a result of the Share Consolidation. A fractional share will be disregarded and cancelled without any repayment of capital or other compensation. Each Shareholder will receive a whole number of post-consolidation Common Shares.

 

3.              Shareholders should refer to the Circular of Largo dated January 25, 2021 for particulars of the Share Consolidation.

 

4.              Each registered Shareholder of Largo must deliver the Letter of Transmittal completed and signed, together with their certificate(s)/DRS to TSX Trust at the office of TSX Trust set out in Instruction 10 below. The method of delivery of the share certificate(s)/DRS is at the option and risk of the Shareholder. It is recommended such documents be delivered to TSX Trust. If mail is used, registered mail, properly insured with acknowledgement of receipt requested, is suggested. Delivery will be effected only when documents are actually received by TSX Trust at the office set out below.

 

5.              Each registered Shareholder must fill in the delivery instructions in Block B and sign and date this Letter of Transmittal. If Block B is not completed, the certificate(s)/DRS representing post-consolidation Common Shares will be mailed to the Shareholder’s address recorded on the books of TSX Trust.

 

6.              If no change in the name of the registered Shareholder appearing on the existing share certificate(s)/DRS is desired but more than one new certificate/DRS is to be issued in that name, a holder should also fill out Block A of this Letter of Transmittal. Any holder who does not fill out Block A will receive one post-consolidation share certificate/DRS for each pre-consolidation share certificate/DRS delivered herewith. No charge will be made for one new replacement certificate but where more than one certificate/DRS is requested a charge of $7.00 (plus H.S.T.) will be levied for each additional certificate/DRS.

 

7.              A registered Shareholder who wishes to have the certificate(s)/DRS representing post-consolidation Common Shares registered in the name of a person other than the registered Shareholder must fill in Block D as well as Blocks A and B of the Letter of Transmittal and must endorse the existing share certificate(s) or a stock transfer power of attorney, delivered with the Letter of Transmittal. The signature of the registered Shareholder must correspond in every respect with the name appearing on the face of the certificate(s)/DRS. Such signature must be guaranteed by a Canadian chartered bank, or a member of the Securities Transfer Association Medallion Program (STAMP).

 

8.              Where the Letter of Transmittal is executed on behalf of a corporation, partnership or association or by any agent, executor, administrator, trustee, curator, guardian or any person acting in a representative capacity, the Letter of Transmittal must be accompanied by evidence of authority to act satisfactory to TSX Trust.

 

9.              The Company reserves the right if it so elects in its absolute discretion to instruct TSX Trust to waive any defect or irregularity contained in any Letter of Transmittal received by it.

 

10.       Additional copies of the Letter of Transmittal may be obtained by contacting TSX Trust at their office specified below.

 

TSX Trust Company

Suite 301, 100 Adelaide Street West

Toronto, ON, M5H 4H1

 

Attention: Corporate Actions

Email: TMXEInvestor Services@tmx.com

 

7

 

11.       If space on this Letter of Transmittal is insufficient to list all share certificates, additional certificate or DRS account numbers and number of Common Shares may be included on a separate signed list affixed to this Letter of Transmittal.

 

12.       If Common Shares are registered in different forms (e.g., “John Doe” and “J. Doe”) a separate Letter of Transmittal should be signed for each different registration.

 

13.       If a share certificate/DRS has been lost or destroyed, the Letter of Transmittal should be completed as fully as possible and forwarded to TSX Trust, at the address set out in Instruction 10 above, together with correspondence stating that the original certificate/DRS has been lost. TSX Trust will respond with replacement instructions (which may include bonding requirements) and forward appropriate documentation. Any questions should be directed to TSX Trust; telephone number 1-866-600-5869, facsimile number (416) 361-0470.

 

14.       TSX Trust is committed to protecting your personal information. In the course of providing services to you and our corporate clients, we receive non-public personal information about you — from transactions we perform for you, forms you send us, other communications we have with you or your representatives, etc. This information could include your name, address, social insurance number, securities holdings and other financial information. We use this to administer your account, to better serve your and our clients’ needs and for other lawful purposes relating to our services. We have prepared a Privacy Policy to tell you more about our information practices and how your privacy is protected. It is available at TSX Trust’s website, tsxtrust.com, or by writing us at 100 Adelaide Street West, Suite 301, Toronto, Ontario, Canada, M5H 4H1. TSX Trust will use the information you are providing on this form in order to process your request and will treat your signature(s) on this form as your consent to the above.

 

15.       This Letter of Transmittal will be construed in accordance with and governed by the laws of the Province of Ontario and the laws of Canada applicable therein.

 

8

Exhibit 99.63

 

FORM 51-102F3
MATERIAL CHANGE REPORT

 

Item 1.

 

Name and Address of Company


Largo Resources Ltd. (the “Company”)
55 University Avenue, Suite 1105
Toronto, Ontario, M5J 2H7

 

 

 

Item 2.

 

Date of Material Change


March 4, 2021

 

 

 

Item 3.

 

News Release


The press release was disseminated on March 4, 2021 through Business Wire and subsequently filed on SEDAR.

 

 

 

Item 4.

 

Summary of Material Change


On March 4, 2021, the Company filed articles of amendment implementing a consolidation of its issued and outstanding common shares on the basis of one (1) post-consolidation common share for every ten (10) pre-consolidation common shares. The common shares are expected to commence trading on the Toronto Stock Exchange on a post-consolidation basis at the open of trading on March 8, 2021.

 

 

 

Item 5.

 

Full Description of Material Change

 

 

 

5.1

 

Full Description of Material Change


On March 4, 2020, the Company, following a determination by its board of directors, filed articles of amendment under the Business Corporations Act (Ontario) implementing a consolidation of its issued and outstanding common shares on the basis of one (1) post-consolidation common share for every ten (10) pre consolidation common shares (the “Consolidation”). The common shares are expected to commence trading on the Toronto Stock Exchange (the “TSX”) on a post-consolidation basis at the open of trading on March 8, 2021.


When the common shares commence trading on a post-consolidation basis, the CUSIP and ISIN numbers of the common shares will change to 517103602 and CA5171036026 respectively.


The Consolidation follows approval by the Company’s shareholders at the Company’s special meeting held on March 1, 2021, of a special resolution authorizing the consolidation of the Company’s issued and outstanding common shares on the basis of one (1) post-consolidation common share for up to ten (10) pre-consolidation common shares, at a time and on the basis of a final consolidation ratio to be determined by the Company’s board of directors.


As a result of the Consolidation, the Company’s outstanding options and warrants were adjusted on the same basis (1 for 10) as the common shares, with

 

 

 

 

proportionate adjustments being made to exercise prices.

 

 

 

5.2

 

Disclosure for Restructuring Transactions


Not Applicable

 

 

 

Item 6.

 

Reliance on Subsection 7.1(2) or (3) of National Instrument 51-102 — Continuous Disclosure Obligations


Not Applicable

 

 

 

Item 7.

 

Omitted Information


None.

 

 

 

Item 8.

 

Executive Officer Knowledgeable of Material Change


Ernest Cleave
Chief Financial Officer
416-861-9797

 

 

 

Item 9.

 

Date of Report


March 5, 2021

 

2

Exhibit 99.64

 

For Ministry Use Only A I'usage etf?:}ISidf uMllifSit'i)"\l;flGIJvernment Ontario Corporation Number Ministere des Services gouvernementaux et des serv1ces aux consommateurs CERTIFICAT cec1 cer'1f1e que les presents statuts entrent en vigueur le and Consumer Serv1ces r Ontario CERTIFICATE This ,5 !(, certify that these articles ;;re effective on .....M.....A....R.....CH-o·4··M·A·R"S',®20'2'1' Director I Drrectrice . . . . Business Corporations Act I Loi sur les socn3tes par actrons or ou 0'11'19 (2011/0fi) @Queen's Printer for Ontario, 2011/ © lmprimeur de Ia Reine pour !'Ontario, 20·11 Page 1 of/de 2 Form3 Business Corporations Act · Forrnule 3 l..oi sur les societes par actions ARTICLES OF AMENDMENT STATUTS DE MODIFICATION 1. The name of the corporation is: (Set out in BLOCK CAPITAL LETTERS) Denomination socialo actuelle do Ia societe (ecrire on LETTRES MAJUSCULES SEUL.EMENT) : LARGO RESOURCES LTD 2. The name of the eorporation is changed to (if applicable ): (Set out in BLOCK CAPITAL LETTERS) Nouvelle denomination sociale de Ia societe (s'il y a lieu) (ecrire en LETTRES MAJUSCULES SEULEMENT) : "'"""""""""''''•-"""""""'""-"'""""'"""""""""""'" """"' --·-"""""'"-""""" 3. Date of incorporation/amalgamation: Date de Ia constitution ou de Ia fusion : 1988-04-18 (Year, Montt1, Day) (annee, mois, jour) 4.Complete only if thoro is a chango in tho number of directors or tho minimum I maximum number of directors. II faut romplir cotte partie soulemont si le nombro d'administrateurs ou si le nombre minimal ou maximal d'administrateurs a change. Number of directors is/are: !D.iDimurn.illld maxitnllill number of directors is/are: Nombre d'administrateurs :nombres mini1Illil.n_e.LrJ.lllXiilllJID d'administrateurs : Number minimum and maximum Nornbre minimum et maximum [ [ _[ 5. The articles of the corporation are amended as follows: Les statuts de Ia societe sont modifies de Ia far;;on suivante : To consolidate the issued and outstanding common shares of the Corporation on the basis of one common share for every 10 common shares currently issued and outstanding. """"""' '"""""" """"'" """""" """'""" """"" ,... _.f. --..... ...., ,,.... ........, ..... ...... """" """'-Numero de Ia societe en Ontario 001619681 Exhibit 99.64

 

6. The amendment t1as been duly authorized as required by sections 168 and 170 (as applicable) of the Business Corporations Act. La modification a ete dOment autorisee conformement aux articles 168 et 170 (selon le cas) de Ia Loi sur les socil3tes par actions. 7. The resolution authorizing the amendment was approved by the shareholders/directors (as applicable) of the corporation on Les actionnaires ou les administrateurs (selon le cas) de Ia societe ont approuve Ia resolution autorisant Ia modification le 2021/03/0l (Year, Month, Day) (annee, mois, jour) These articles are signed in duplicate. Les presents statuts sont signes en double exemplaire. LARGO RESOURCES LTD. (Print name of corporation from Article ·1 on page ·1) (Veuillez ecrir le nom de Ia societe de l'atiicle un a Ia page une). By/ Par: Chief Financial Officer (Signature) (Signature) (Description of Office) (Fonction) Ernest Cleave 07119 (2011/05) Page 2 of/de 2

 

Exhibit 99.65

 

 

PRESS RELEASE

 

March 15, 2021

 

Largo Resources Announces the Execution of its First Iron Ore Sales Contract

 

TORONTO — Largo Resources Ltd. (“Largo” or the “Company”) (TSX: LGO) (OTCQX: LGORF) is pleased to announce the first sale of iron ore from the Maracás Menchen Mine.

 

The Company finalized a sales contract for 14,000 tonnes of iron ore to a leading steel producer on March 12, 2021. Transport of the contracted material has commenced, and full delivery is expected by the end of March 2021. To date in 2021, the Company is currently producing iron ore at a rate that would result in the generation of approximately 500,000 tonnes per annum and has accumulated a total stockpile of approximately 2 million tonnes.

 

Paulo Misk, President and Chief Executive Officer of Largo, stated: “Our first sale of iron ore was a key step in validating the commercial viability of this material. This sale also highlights the added benefits of our newly established internal sales division and capitalizes on the higher iron ore price environment. He continued: “It is also a diversification of sources of revenue for the Company as up until now, 100% of the Company’s revenues have been derived from the sale of vanadium products. Material mined from the Maracás Menchen Mine contains vanadium, iron ore and titanium. We will continue to explore the economic feasibility of extracting additional value from the Company’s mineral resource.”

 

About Largo Resources

 

Largo Resources is an industry preferred, vertically integrated vanadium company. It services multiple vanadium market applications through the supply of its unrivaled VPURE™ and VPURE+™ products, from one of the world’s highest-grade vanadium deposits at the Company’s Maracás Menchen Mine located in Brazil. Largo is also focused on the advancement of renewable energy storage solutions through its world-class VCHARGE± vanadium redox flow battery technology. The Company’s common shares are listed on the Toronto Stock Exchange under the symbol “LGO”.

 

For more information on Largo and VPURE™, please visit www.largoresources.com and www.largoVPURE.com.

 

For additional information on Largo Clean Energy, please visit www.largocleanenergy.com.

 

###

 

For further information, please contact:

 

Investor Relations:

Alex Guthrie
Senior Manager, External Relations
aguthrie@largoresources.com
Tel: +1 416-861-9797

 

 

Media Enquiries:

Crystal Quast

Bullseye Corporate

Quast@bullseyecorporate.com

Tel: +1 647-529-6364

 

Forward-looking Information:

 

This press release contains forward-looking information under Canadian securities legislation, some of which may be considered “financial outlook” for the purposes of application Canadian securities legislation (“forward-looking statements”). Forward-looking information in this press release includes, but is not limited to, statements with respect to the timing and amount of estimated future production and sales; costs of future activities and operations; the extent of capital and operating expenditures; the iron ore price environment and the extent and overall impact of the COVID-19 pandemic in Brazil and globally. Forward-looking information in this press release also includes, but is not limited to, statements with respect to our ability to build, finance and operate a VRFB business, our ability to complete a listing on the Nasdaq, our ability to protect and develop our technology, our ability to maintain our IP, our ability to market and sell our VCHARGE± battery system on specification and at a competitive price, our ability to secure the required production resources to build our VCHARGE± battery system, our ability to produce iron ore and the adoption of VFRB technology generally in the market. Forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. All information contained in this news release, other than statements of current and historical fact, is forward looking information. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of Largo or Largo Clean Energy to be materially different from those expressed or implied by such forward-looking statements, including but not limited to those risks described in the annual information form of Largo and in its public documents filed on SEDAR from time to time. Forward-looking statements are based on the opinions and estimates of management as of the date such statements are made. Although management of Largo has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Largo does not undertake to update any forward-looking statements, except in accordance with applicable securities laws. Readers should also review the risks and uncertainties sections of Largo’s annual and interim MD&As which also apply.

 

Exhibit 99.66

 

 

PRESS RELEASE

 

March 17, 2021

 


Largo Resources Strengthens its Board of Directors with the Appointment of Ian Robertson: Former Founder and CEO of Algonquin Power & Utilities Corp.

 

TORONTO — Largo Resources Ltd. (“Largo” or the “Company”) (TSX: LGO) (OTCQX: LGORF) is very pleased to announce the appointment of Mr. Ian Robertson to its Board of Directors (the “Board”).

 

Alberto Arias, Non-executive Chairman of Largo, stated: “As a pioneer in the renewable energy sector, Ian was instrumental in the extraordinary growth of Algonquin Power & Utilities Corp. (“Algonquin”) from its founding to a TSX80 global energy and utility company with over US$11 billion in assets, including more than 2,000 megawatts of renewable generating capacity.” He continued: “Ian’s strong business acumen, commitment to sustainable development and strategic contacts in the energy and utility industries will assist the Board in overseeing the development of the Largo Clean Energy division.”

 

Mr. Robertson has more than 30 years of experience in the origination and execution of global energy initiatives and is committed to the concept of sustainable development. From co-founding Algonquin’s predecessor in 1988, Ian served as Chief Executive Officer and a Director of Algonquin until July 2020. During his leadership tenure at Algonquin, Mr. Robertson drove the expansion of wind and solar energy modalities, as well as leading the company to become a sustainability focused North American regulated electric, natural gas and water utility with over 800,000 customers. Mr. Robertson previously served on the Board of Directors of Algonquin’s affiliate Atlantica Yield plc, a publicly listed sustainable infrastructure company with over 1,551 megawatts of renewable energy generation capacity. Mr. Robertson received an electrical engineering degree from the University of Waterloo, a Master of Business Administration from York University, and a Master of Law from the Law School of the University of Toronto. He is a professional engineer and holds a Chartered Financial Analyst designation.

 

About Largo Resources

 

Largo Resources is an industry preferred, vertically integrated vanadium company. It services multiple vanadium market applications through the supply of its unrivaled VPURE™ and VPURE+™ products, from one of the world’s highest-grade vanadium deposits at the Company’s Maracás Menchen Mine located in Brazil. Largo is also focused on the advancement of renewable energy storage solutions through its world-class VCHARGE± vanadium redox flow battery technology. The Company’s common shares are listed on the Toronto Stock Exchange under the symbol “LGO”.

 

For more information on Largo and VPURE™, please visit www.largoresources.com and www.largoVPURE.com.

 

For additional information on Largo Clean Energy, please visit www.largocleanenergy.com.

 

###

 

For further information, please contact:

 

 

Investor Relations:

Alex Guthrie
Senior Manager, External Relations
aguthrie@largoresources.com
Tel: +1 416-861-9797

 

Media Enquiries:

Crystal Quast

Bullseye Corporate

Quast@bullseyecorporate.com

Tel: +1 647-529-6364

 

Forward-looking Information:

 

This press release contains forward-looking information under Canadian securities legislation, some of which may be considered “financial outlook” for the purposes of application Canadian securities legislation (“forward-looking statements”). Forward-looking information in this press release includes, but is not limited to, statements with respect to the timing and amount of estimated future production and sales; costs of future activities and operations; the extent of capital and operating expenditures; the iron ore price environment and the extent and overall impact of the COVID-19 pandemic in Brazil and globally. Forward-looking information in this press release also includes, but is not limited to, statements with respect to our ability to build, finance and operate a VRFB business, our ability to complete a listing on the Nasdaq, our ability to protect and develop our technology, our ability to maintain our IP, our ability to market and sell our VCHARGE± battery system on specification and at a competitive price, our ability to secure the required production resources to build our VCHARGE± battery system, our ability to produce iron ore and the adoption of VFRB technology generally in the market. Forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. All information contained in this news release, other than statements of current and historical fact, is forward looking information. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of Largo or Largo Clean Energy to be materially different from those expressed or implied by such forward-looking statements, including but not limited to those risks described in the annual information form of Largo and in its public documents filed on SEDAR from time to time. Forward-looking statements are based on the opinions and estimates of management as of the date such statements are made. Although management of Largo has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Largo does not undertake to update any forward-looking statements, except in accordance with applicable securities laws. Readers should also review the risks and uncertainties sections of Largo’s annual and interim MD&As which also apply.

 

Exhibit 99.67

 

 

ANNUAL INFORMATION FORM

FOR THE YEAR ENDED DECEMBER 31, 2020

 

Dated March 17, 2021

 

 

 

TABLE OF CONTENTS

 

 

Page

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION

1

 

 

CAUTIONARY NOTE TO UNITED STATES INVESTORS

3

 

 

MARKET AND INDUSTRY DATA

3

 

 

OTHER INFORMATION

3

 

 

QUALIFIED PERSON

3

 

 

CURRENCY PRESENTATION AND DATE OF INFORMATION

4

 

 

CORPORATE STRUCTURE

4

 

 

GENERAL DEVELOPMENT OF THE BUSINESS

5

 

 

DESCRIPTION OF THE BUSINESS

9

 

 

RISK FACTORS

23

 

 

DIVIDENDS

42

 

 

DESCRIPTION OF CAPITAL STRUCTURE

42

 

 

MARKET FOR SECURITIES

43

 

 

DIRECTORS AND OFFICERS

44

 

 

AUDIT COMMITTEE DISCLOSURE

48

 

 

LEGAL PROCEEDINGS AND REGULATORY ACTIONS

49

 

 

INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS

49

 

 

TRANSFER AGENT AND REGISTRAR

50

 

 

MATERIAL CONTRACTS

50

 

 

INTERESTS OF EXPERTS

50

 

 

ADDITIONAL INFORMATION

50

 

 

SCHEDULE A - GLOSSARY

 

 

 

SCHEDULE B - AUDIT CHARTER

 

 

2020 ANNUAL INFORMATION FORM

 

i

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION

 

This annual information form (“AIF”), including documents incorporated by reference herein, contains “forward-looking information” and “forward-looking statements” within the meaning of applicable Canadian and United States securities laws (together, “forward-looking information”) concerning the Company’s projects, capital, anticipated financial performance, business prospects and strategies and other general matters. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those included in the forward-looking information. The use of words such as “intend”, “anticipate”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “should”, “believe” and similar expressions are intended to identify forward-looking information. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance are not statements of historical fact and may constitute forward-looking information. Statements relating to Mineral Resources are also forward-looking information, as they involve the implied assessment, based on certain estimates and assumptions that the Mineral Resources described can be profitably produced in the future. There is no certainty that it will be commercially viable to produce any portion of the Mineral Resources.

 

Forward-looking information includes statements with respect to:

 

·            the Company’s sales operations and anticipated sales of vanadium products;

 

·            the Company’s goals regarding development of its projects and further exploration and development of its properties;

 

·            the Company’s proposed plans for advancing its projects, and potential future exploration and development projects;

 

·            the Company’s expectations regarding the timing for completion of, resulting production from, and anticipated benefits of, the Ferrovanadium Conversion Plant;

 

·            the Company’s expectations and proposed plans for Largo Clean Energy and its vertically integrated vanadium redox flow battery business;

 

·            the Company’s expectations regarding the results of the initial chemical pilot plant tests and the potential to produce TiO2;

 

·            expectations regarding the continuity of mineral deposits;

 

·            future prices of V2O5;

 

·            future production at our Maracás Menchen Mine;

 

·            the extent and overall impact of the COVID-19 pandemic;

 

·            the results in the Technical Report including resource estimates;

 

·            expectations regarding any environmental issues that may affect planned or future exploration and development programs and the potential impact of complying with existing and proposed environmental laws and regulations;

 

·            receipt and timing of third party approvals;

 

·            government regulation of mineral exploration and development operations in Brazil;

 

·            expectations regarding any social or local community issues in Brazil that may affect planned or future exploration and development programs; and

 

·            statements in respect of V2O5 demand and supply.

 

These statements and information are only predictions based on current information and knowledge, some of which may be attributed to third party industry sources. Actual future events or results may differ materially. Undue reliance should not be placed on such forward-looking information, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. By its nature, forward-looking information involves numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking information will not be realized.

 

1

 

The following are some of the assumptions upon which forward-looking information is based:

 

·            that general business and economic conditions will not change in a material adverse manner;

 

·            demand for, and stable or improving price of, V2O5, V2O3, and FeV;

 

·            that the Company will enter into agreements for the sales of vanadium products on favourable terms and for the sale of substantially all of its annual production capacity;

 

·            receipt of regulatory and governmental approvals, permits and renewals in a timely manner;

 

·            that the Company will not experience any material accident, labour dispute or failure of plant or equipment or other material disruption in the Company’s operations at the Maracás Menchen Mine;

 

·            the availability of financing for operations and development;

 

·            the Company’s ability to procure equipment and operating supplies in sufficient quantities and on a timely basis;

 

·            that the Company will have sufficient capital resources available for the build out of the Ferrovanadium Conversion Plant;

 

·            that the Ferrovanadium Conversion Plant will be completed on budget and in a reasonable timeframe;

 

·            that the Vanadium Trioxide Plant will be completed on budget and in a reasonable timeframe;

 

·            that the estimates of the Mineral Resources and Mineral Reserves at the Maracás Menchen Mine are within reasonable bounds of accuracy (including with respect to size, grade and recovery);

 

·            the Company’s ability to attract and retain skilled personnel and directors; and

 

·            the accuracy of the Company’s Mineral Reserves and Mineral Resource estimates (including size, grade and recoverability) and the geological, operational and price assumptions on which these are based.

 

Actual results could differ materially from those anticipated in this forward-looking information as a result of the risks and uncertainties including, without limitation:

 

·            volatility in prices of, and demand for, V2O5, V2O3, or FeV;

 

·            risks inherent in mineral exploration and development;

 

·            uncertainties associated with estimating Mineral Resources and Mineral Reserves;

 

·            uncertainties related to title to the Company’s mineral projects;

 

·            revocation of government approvals;

 

·            tightening of the credit markets, global economic uncertainty and counterparty risk;

 

·            failure of plant, equipment or processes to operate as anticipated;

 

·            unexpected events and delays during construction and development;

 

·            competition for, among other things, capital and skilled personnel;

 

·            geological, technical and drilling problems;

 

·            fluctuations in foreign exchange or interest rates and stock market volatility;

 

·            rising costs of labour and equipment;

 

·            disruption caused by labour actions;

 

·            risks associated with political and/or economic instability in Brazil;

 

·            inherent uncertainties involved in the legal dispute resolution process, including in foreign jurisdictions;

 

·            our ability to build, finance and operate our vanadium redox flow battery business

 

·            changes in income tax and other laws of foreign jurisdictions; and

 

·            other factors discussed under “Risk Factors” in this AIF.

 

Assumptions relating to the potential mineralization of the Maracás Menchen Mine are discussed in the Technical Report which is available under the Company’s profile on SEDAR.

 

Additional risks and uncertainties not currently known to the Company, or that the Company currently deems to be immaterial, may also materially and adversely affect the Company’s business and prospects. Should one or more of these risks and uncertainties materialize, or should any of the underlying assumptions prove incorrect, actual results may vary materially from those described in forward-looking information.

 

Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking information, there may be other factors that cause actions,

 

2

 

events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. The reader is cautioned not to place undue reliance on forward-looking information.

 

The forward-looking information is presented for the purpose of assisting investors in understanding the Company’s plans, objectives and expectations in making an investment decision and may not be appropriate for other purposes. This forward-looking information is expressly qualified in its entirety by this cautionary statement. Forward-looking information contained in this AIF or documents incorporated herein by reference are made as of the date of this AIF or the document incorporated herein by reference, as applicable, and are accordingly subject to change after such date. The Company disclaims any obligation to update any such forward-looking information to reflect events or circumstances after the date of such information, or to reflect the occurrence of anticipated or unanticipated events, except as required by law.

 

CAUTIONARY NOTE TO UNITED STATES INVESTORS

 

This AIF uses the terms “Measured”, “Indicated” and “Inferred” Mineral Resources. United States investors are advised that while such terms are recognized and required by Canadian regulations, the United States Securities and Exchange Commission does not recognize them. Inferred Mineral Resources have a great amount of uncertainty as to their existence, and as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies. United States investors are cautioned not to assume that all or any part of Measured or Indicated Mineral Resources will ever be converted into Mineral Reserves. United States investors are also cautioned not to assume that all or any part of an Inferred Mineral Resource exists, or is economically or legally mineable.

 

MARKET AND INDUSTRY DATA

 

Market and industry data contained and incorporated by reference in this AIF concerning economic and industry trends is based upon good faith estimates of our management or derived from information provided by industry sources. The Company believes that such market and industry data is accurate and that the sources from which it has been obtained are reliable. However, we cannot guarantee the accuracy of such information and we have not independently verified the assumptions upon which projections of future trends are based.

 

OTHER INFORMATION

 

In this annual information form, references to “Largo”, the “Company”, and “we” mean Largo Resources Ltd. and its subsidiaries as applicable (unless the context otherwise requires). Unless stated otherwise, the share numbers, securities and price per security stated give effect to the 2021 Share Consolidation (as defined herein) of the Company’s Common Shares on a ten (10) for one (1) basis effective March 4, 2021, notwithstanding that such amounts may relate to a period preceding the consolidation.   The Common Shares began trading on a post-consolidation basis on March 8, 2021.

 

The disclosure in this AIF is supplemented throughout the year by, and is to be read in context with, subsequent continuous disclosure filings including news releases, material change reports, financial statements, management discussion and analysis and technical reports filed under NI 43-101. This AIF contains information which the Company believes, in context and in exercising its judgement, to be material. Information which the Company, in exercising its judgement, believes, in context, is not material (or, due to the passage of time, is no longer material), has not been included in this AIF.

 

QUALIFIED PERSON

 

Except as otherwise noted in this AIF, Mr. Paul Sarjeant, B.Sc. P. Geo is the Qualified Person (as that term is defined under NI 43-101) who has reviewed and approved the technical disclosure in this AIF. Mr. Sarjeant is the Manager, Geology of the

 

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Company. For a description of key assumptions, parameters and methods used to estimate Mineral Reserves and Resources, as well as data verification procedures and a general discussion of the extent to which the estimates may be affected by any known environmental, permitting, legal title, taxation, sociopolitical, marketing or other relevant factors, please see the Technical Report for our material property as filed by us on SEDAR at www.sedar.com.

 

CURRENCY PRESENTATION AND DATE OF INFORMATION

 

This AIF contains references to United States dollars, Canadian dollars, Brazilian reals and to the European Euro. All dollar amounts referenced herein, unless otherwise indicated, are expressed in United States dollars “$”. Canadian dollars may be referred to as “Canadian dollars” or “C$”. Brazilian reals may be referred to as “Brazilian reals” or “R$”, and the European Euro may be referred to as “Euro” or “€”.

 

The following tables set out the average annual exchange rates according to information published by the Bank of Canada and the resulting currency conversion if one US$, one Brazilian real and one € were exchanged for the equivalent in Canadian dollar(s).

 

 

 

Year Ended December 31

 

One US Dollar

 

2020

 

2019

 

2018

 

Closing in Cdn Dollar(s)

 

$

1.3415

 

$

1.3269

 

$

1.2957

 

 

 

 

Year Ended December 31

 

One Brazilian Real

 

2020

 

2019

 

2018

 

Closing in Cdn Dollar(s)

 

$

0.2625

 

$

0.3371

 

$

0.3566

 

 

 

 

Year Ended December 31

 

One Euro Dollar

 

2020

 

2019

 

2018

 

Closing in Cdn Dollar(s)

 

$

1.5298

 

$

1.4856

 

$

1.5302

 

 

Based on information published by the Bank of Canada, (i) the value of one United States dollar, if exchanged for one Canadian dollar, would have been C$1.2808 for the month of December of 2020, (ii) the value of one Brazilian real, if exchanged for one Canadian dollar, would have been C$0.2491 for the month of December of 2020, and (iii) the value of one Euro dollar, if exchanged for one Canadian dollar, would have been C$1.5586 for the month of December of 2020.

 

On March 16, 2021, the indicative exchange rate for Canadian dollars in terms of the United States dollar, as quoted by the Bank of Canada, was $1.00 = C$1.2455, the exchange rate into R$, was 1 real = C$0.2228, and the exchange rate into €, was €1 = C$1.4831.

 

All information in this AIF is given as of December 31, 2020, unless otherwise indicated. The Company’s fiscal year end is December 31.

 

CORPORATE STRUCTURE

 

Incorporation and Registered Office

 

Largo is a company continued under the Business Corporations Act (Ontario).

 

The Company was originally incorporated under the name Kaitone Holdings Ltd. in the province of British Columbia on April 18, 1988. On September 3, 1991, the Company changed its name to Consolidated Kaitone Holdings Ltd. On May 8, 2003, the Company changed its name to Largo Resources Ltd. On June 10, 2004, the Company continued to the Province of Ontario and filed articles of amendment to amend its authorized share capital to an unlimited number of Common Shares. On October 17, 2014, the Company completed a consolidation of its Common Shares on the basis of one (1) post-consolidation Common Share for each ten (10) pre-consolidation Common Shares. On March 4, 2021, the Company completed a consolidation of its Common Shares on the basis of one (1) post-consolidation Common share for each ten (10) pre-consolidation Common Shares (the “2021 Share Consolidation”).

 

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The head office and registered office of the Company is located at 55 University Avenue, Suite 1105, Toronto, Ontario, Canada M5J 2H7.

 

Intercorporate Relationships

 

The following chart shows our principal subsidiaries, their jurisdiction of incorporation and the percentage of voting securities we beneficially own or over which we have control or direction:

 

 

Notes:

 

(1)   Under Brazilian law, a corporation must have at least two shareholders or quotaholders, as applicable. Shareholders or quotaholders, as applicable, can be individuals or legal entities. Accordingly, Mr. Paulo Guimaraes Misk, President of the Brazilian operations of the Company, holds an interest of <0.001% (101 shares) and <0.017% (2 quotas) in the capital stock of Mineração Currais Novos Ltda. and Campo Alegre de Lourdes Ltda., respectively.

 

(2)   The remaining shares of Vanádio are owned by Companhia Baiana de Pesquisa Mineral, an entity controlled by the Brazilian State of Bahia, see also “Description of the Business — Material Project - Maracás Menchen Mine - Project Description, Location and Access”.

 

(3)   Holds a 100% interest in the tungsten-molybdenum Northern Dancer Project in the Yukon, Canada.

 

(4)   Holds a 100% interest in the tungsten tailings Currais Novos Project, in Brazil.

 

(5)   Holds a 100% interest in the iron-vanadium Campo Alegre Project in Brazil.

 

(6)   Holds a 100% interest in our Maracás Menchen Mine.

 

(7)   These entities facilitate the Company’s sales and distribution capabilities, see also “Description of the Business — Marketing and Distribution”.

 

GENERAL DEVELOPMENT OF THE BUSINESS

 

Largo is a Canadian natural resource development and exploration company listed on the TSX and OTCQB.

 

We are a strategic mineral company focused on the production of vanadium pentoxide (V2O5) at our Maracás Menchen Mine located in Bahia, Brazil, being the Company’s sole material project for the purposes of NI 43-101. The Maracás Menchen Mine is our principal operating asset and accounted for all of our revenues since commencing operations in 2014.

 

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Vanadium is primarily used as an alloy to strengthen steel and reduce its weight. Vanadium enhanced steels are currently used in a vast range of products including, rebar, automobiles, transport infrastructure and is increasingly being adopted in other products and applications that demand stronger and lighter steel.

 

We also have a portfolio of secondary projects consisting of (i) the Campo Alegre de Lourdes project, an iron vanadium property in Bahia, Brazil, (ii) the Northern Dancer project, a tungsten and molybdenum property in Yukon, Canada, and (iii) Currais Novos, a tungsten project. As of the date of this AIF, none of these projects are operational, and we do not consider any of these projects to be material properties.

 

Three Year History

 

The following is a summary of the general development of the Company’s business.

 

Equity Financings

 

On July 24, 2018, the Company completed a secondary offering by way of short form prospectus of 6,900,000 Common Shares at a price of C$14.00 per share (69,000,000 Common Shares and C$1.40, respectively, on a pre-2021 Share Consolidation basis).

 

On November 15, 2018, the Company amended the terms of all outstanding warrants issued in connection with the March 2016 Financing, October 2016 Financing, January 2017 Financing, December 2017 Financing, and the Bridge Loan, permitting the cashless exercise of all such warrants. To date, 2,118,032 Common Shares (being 21,180,324 Common Shares on a pre-2021 Share Consolidation basis) have been issued in connection with the exercise of warrants on a cashless basis.

 

On February 6, 2019, the Company filed a base shelf prospectus qualifying the distribution of up to C$750 million of securities of the Company. This base shelf was effective for a 25-month period which ended on March 6, 2021.

 

Senior Secured Notes

 

On May 22, 2018, the Company completed a note offering of $150.0 million (the “Note Offering”) in aggregate principal amount of 9.25% senior secured notes due in 2021 (the “Notes”). The Company completed the Note Offering in order to simplify its existing debt capital structure and to eliminate a covenant under the 2017 Facility which restricts the movement of funds from the Company’s operating entity, Vanádio, to the Canadian parent. On August 2, 2018, proceeds from the Note Offering were used to repay $144.1 million owing under the BNDES Facilities.

 

Between September 2018 and July 2019, the Company repurchased and retired all outstanding Notes at redemption prices ranging between 103% and 105.625% of the principal amount of the Notes, plus accrued and unpaid interest due on the Notes. The final payment for the redemption of all outstanding Notes was made on July 7, 2019.

 

Debt Facilities

 

On April 4, 2018, the Company along with its operating subsidiary, Vanádio, completed a restructuring and conversion of Vanádio’s Pine Facility. As a result of the restructuring, approximately $9.0 million of debt owed by Vanádio was paid down with the remaining balance being restructured for payment over approximately 6.5 years. This restructuring resulted in the complete restructuring of the Company and Vanádio’s previously existing debt facilities with the Banco Pine S.A. (“Banco Pine”).

 

On August 2, 2018, proceeds from the Note Offering were used to repay all outstanding amounts owing under the BNDES Facility.

 

On September 27, 2018, Vanádio completed the repayment in full to Banco Pine of its outstanding debt of approximately C$22.9 million.

 

6

 

On March 18, 2020, the Company secured a $13.0 million credit facility with a bank in Brazil. This facility was fully drawn down and proceeds of R$65.96 million (13.0 million) were received on March 20, 2020. This facility is due to be repaid as a lump sum payment on March 12, 2021, together with accrued interest at a rate of 3.35% per annum. On January 29, 2021, the Company repaid in full the amounts owing under this facility.

 

On March 24, 2020, the Company secured a $11.788 million credit facility with a second bank in Brazil. This facility was fully drawn down and proceeds of R$60.0 million ($11.788 million) were received on March 24, 2020. This facility is due to be repaid as a lump sum payment on March 18, 2021, together with accrued interest at a rate of 6.29% per annum. On February 3, 2021, the Company repaid in full the amounts owing under this facility.

 

Operations

 

On October 5, 2018, INEMA renewed the Company’s operating license for the Maracás Menchen Mine. The renewed operating license is valid for a period of two years, and may be further extended within six months of the operating license’s new expiry date for an additional period of between two and five years. The license renewal process commenced in May 2020, however, due to the COVID-19 pandemic, INEMA has been unable to visit the Maracás Menchen Mine to complete its audit. The operating license has been automatically extended until INEMA can complete its review, including, the inspection process.

 

On November 2, 2018, INEMA published the Company’s environmental license for the Expansion of the Maracás Menchen Mine.

 

On December 19, 2018, the Company reported on 20 of 24 NQ diamond drill holes that it had drilled at its Novo Amparo Norte (“NAN”) deposit in 2018 as part of a second phase drill program, see “Description of the Business — Exploration, Development, and Production”.

 

On June 11, 2019, the Company announced the results of its 2019 exploration program returning a significant increase to the overall resource bases at its NAN deposit in Maracás, Brazil. The exploration program resulted in the conversion of Inferred Mineral Resources to Measured and Indicated categories, in addition to increasing the overall Inferred Mineral Resources. See “Description of the Business — Material Projects — Exploration, Development, and Production”.

 

On June 19, 2019, the Company announced that, effective September 2019, Mr. Paul Vollant would be joining as Director of Sales and Trading with Largo Commodities Trading Limited (“Largo Ireland”). Mr. Vollant is tasked with leading the development of the Company’s sales and trading business and building out the Company’s presence in the global vanadium market.

 

On August 20, 2019, the Company provided notice to Glencore International AG of the nonrenewal of its Offtake Agreement, terminating effective April 30, 2020, see “Description of the Business — Marketing and Distribution”.

 

On September 8, 2019, Paulo Misk, formerly Chief Operating Officer of the Company, was promoted to President and Chief Executive Officer, replacing the vacancy created by Mr. Mark Smith’s departure from the Company. Concurrently, Mr. Alberto Arias was named non-executive Chairman of the Company’s Board of Directors.

 

On October 21, 2019, Mr. Francesco D’Alessio joined Largo Resources USA Inc. (“Largo USA”) as Head of Sales, Americas. Mr. D’Alessio will be supporting the Company’s vanadium sales and trading business with a particular focus on North and South American markets.

 

On November 13, 2019, the Company approved the construction of a ferrovanadium conversion plant at the Maracás Menchen Mine (the “Ferrovanadium Conversion Plant”). In light of the COVID-19 pandemic, the Company deferred certain planned 2020 capital expenditures, including the construction of the Ferrovanadium Conversion Plant. The Company continues to evaluate circumstances and has not made any further decisions in respect of the timing for construction of the Ferrovanadium Conversion Plant. Ferrovanadium is essential in the production of steel products, which make up approximately 91% of global vanadium consumption. When complete, the Ferrovanadium Conversion

 

7

 

Plant is anticipated to create downstream advantages as it vertically integrates the conversion of the Company’s V2O5, eliminating third party convertors, and will enable the Company to supply ferrovanadium consumers directly.

 

In December 2019, the Company completed the Expansion of the Maracás Menchen Mine.

 

On January 22, 2020, the Company announced the launch of VPURE and VPURE+, newly developed brands for the Company’s industry preferred line of vanadium products.

 

In April 2020, the Company constructed a chemical pilot plant to test the ability to further upgrade its potential ilmenite product to TiO2 pigment. Test work to further understand and evaluate the Company’s TiO2 project remains on-going.

 

On April 30, 2020, the Company’s Offtake Agreement with Glencore was terminated, and on May 14, 2020, the Company completed its first independent sales shipment of vanadium from Brazil outside of the Offtake Agreement.

 

In July 2020, the Company began construction of a vanadium trioxide processing plant at the Maracás Menchen Mine (the “Vanadium Trioxide Plant”) which is estimated to be completed in the second half of 2021. When complete, the Vanadium Trioxide Plant is anticipated is expected to increase sales for the high-purity aerospace market, the chemical industry and for vanadium electrolyte used for vanadium redox flow batteries.

 

In June 2020, the Company’s 2020 drill program recommenced following delays caused by the COVID-19 pandemic. All drilling personnel have followed the prescribed COVID-19 quarantine procedures before beginning work on site and Largo does not anticipate any further disruptions to the overall plan going forward. Additional drill equipment and crews were mobilised in July and August 2020 to increase the production of total meters drilled in order to maintain the planned drilling timeframes at the various targets. The Company completed 24,771 meters of drilling on the Near Mine Targets (“NMT”) and within the Campbell Pit in 2020.

 

On December 8, 2020, the Company announced the launch of Largo Clean Energy Corp. (“Largo Clean Energy”), a newly formed subsidiary in Delaware (U.S), following its acquisition on December 8, 2020 of the certain assets, primarily consisting of 12 patent families (the “VionX Assets”) of VionX Energy Corporation (“VionX”) from VXE (ABC) LLC, in its capacity as assignee for the benefit of the creditors of VionX. Concurrently, Largo also hired certain key team members who had previously been employed by VionX. VionX had been involved in the development and production of vanadium redox flow batteries (“VRFB”) primarily for use in large scale energy grid storage solutions since 2002.  Largo Clean Energy was launched so that the Company could develop a clean energy storage business with a goal of providing safe and sustainable VRFB systems to the fast-growing renewable energy market.

 

The VionX Assets were acquired for deemed net consideration equal to $3.862 million that was satisfied through the issuance of 251,845 Common Shares at a deemed price per Common Share of C$10.35 (2,518,453 Common Shares and $1.035, respectively, on a pre-2021 Share Consolidation basis) and warrants to acquire 362,201 Common Share exercisable at C$13.00 per Common Share (3,622,007  Common Shares and C$1.30, respectively, on a pre-2021 Share Consolidation basis)  for period of five (5) years ending December 8, 2025. In connection with the transaction, Largo Clean Energy also entered into a non-exclusive license agreement with Raytheon Technologies Corporation in respect of certain technology to be used by Largo Clean Energy.

 

On January 11, 2021, the Company began a planned shutdown of its Maracás Menchen Mine to replace the kiln and cooler refractories. The shutdown resulted in approximately 20 days of downtime. The Company utilized this downtime to perform feed rate improvements on the kiln which increased the nameplate production capacity to 1,100 tonnes of V2O5 per month from 1,000 tonnes. The Company also conducted a preventative maintenance program downstream of the kiln and cooler during this time.

 

On March 16, 2021, Mr. Ian Robertson joined the Company’s Board.

 

8

 

COVID-19

 

The Company’s Maracás Menchen Mine continued operations during the year ended December 31, 2020. The Company continues to monitor the evolving COVID-19 pandemic and has taken preventative measures at its mine site and corporate offices to mitigate potential risks. Although there have been some challenges with logistics, there continues to be no significant impact on the Company’s production or on the shipment of products out of Maracás. To date, there continues to be no significant disruption to the Company’s supply chain for its operations and the level of critical consumables continues to be at normal levels. In addition, the restrictions imposed by the government in Brazil have not significantly impacted operations. The Company continues to follow the recommendations provided by health authorities and all corporate office personnel have been instructed to work from home where possible. The Company continues to staff critical functions at the Maracás Menchen Mine and has encouraged those in non-essential roles to work from home.

 

Notwithstanding the delay in the increase in nameplate production capacity as a result of COVID-19 precautions until January 2021, the Company met its 2020 production guidance.

 

The Company’s 2021 guidance continues to be presented on a “business as usual” basis. The Company continues to monitor measures being imposed by governments globally to reduce the spread of COVID-19 and the impact that this may have on the Company’s operations, sales and guidance for 2021. Although these restrictions have not, to date, had a material impact on the Company’s operations and sales, the potential future impact of COVID-19 both in Brazil and globally could have a significant impact on the Company’s operations, sales efforts and logistics. The Company is continuing to monitor the rapidly developing impacts of the COVID-19 pandemic and will take all possible actions to help minimize the impact on the Company and its people. However, these actions may significantly change the guidance and forecasts presented and will, if and when necessary, update its guidance accordingly.

 

DESCRIPTION OF THE BUSINESS

 

General

 

Largo is a Canadian natural resource company listed on the TSX and OTCQX and focused on the production of VPURE Flake, VPURE+ Flake and VPURE+ Powder. Our principal operating asset is the Maracás Menchen Mine located in Bahia, Brazil, which accounted for all of our revenues since it commenced operations in 2014. According to the Technical Report, effective as of May 2, 2017, the Maracás Menchen Mine had one of the world’s highest-grade vanadium deposits with Proven Mineral Reserves of 17.57 million tonnes at an average grade of 1.14% V2O5 and Probable Mineral Reserves of 1.44 million tonnes with an average grade of 1.26% V2O5. On November 2, 2018, INEMA published the Company’s environmental license for the Expansion of the Maracás Menchen Mine, and the Company completed the Expansion in December 2019. The Maracás Menchen Mine produces V2O5 products and effective as of May 2, 2017 had a current mine life of over 10 years, based on its Proven Mineral Reserves and Probable Mineral Reserves as set forth in the Technical Report.

 

We are currently one of the lowest cost producers of V2O5 in the world due to the characteristics of the Maracás Menchen Mine’s ore body and our operating efficiency. Since the termination of our Offtake Agreement with Glencore effective April 30, 2020, we have been solely responsible for the sales, distribution and marketing of our vanadium products. We have an established team of sales professionals that lead global sales of our vanadium products, see “General Development of the Business — Three Year History — Operations”, and “Description of the Business — Marketing and Distribution”.

 

We also have a portfolio of secondary projects consisting of (i) the Campo Alegre de Lourdes project, an iron vanadium property in Bahia, Brazil, (ii) the Northern Dancer project, a tungsten and molybdenum property in Yukon, Canada and (iii) Currais Novos, a tungsten project. As of the date of this AIF, none of these projects are operational and we do not consider any of these projects to be material properties.

 

In November 2019, the Company approved the construction of the Ferrovanadium Conversion Plant. In light of the COVID-19 pandemic, the Company deferred certain planned 2020 capital expenditures, including the construction of the Ferrovanadium Conversion Plant. The Company continues to evaluate circumstances and has not made any further

 

9

 

decisions in respect of the timing for construction of the Ferrovanadium Conversion Plant. Once built, the Ferrovanadium Conversion Plant is anticipated to create downstream advantages for the Company as it will vertically integrate the conversion of the Company’s V2O5, eliminating third party convertors, and enabling the Company to supply ferrovanadium consumers directly, see “General Development of the Business — Three Year History — Operations”.

 

In December 2020, the Company announced the launch of Largo Clean Energy as a new business unit. The launch of Largo Clean Energy was aimed at creating a vertically integrated energy storage provider for the growing renewable energy storage market. In working to build a VRFB business, Largo is building downstream capabilities in order to diversify its product and customer base, and increase its flexibility in any vanadium price environment. See “General Development of the Business — Operations”.

 

The Vanadium Industry

 

Vanadium is a naturally-occurring, silvery-grey element with an atomic number of 23. It is not typically found as a free-form element in nature, but rather exists in an oxidation state as part of mineral deposits, including vanadinite, carnotite and magnetite ores, or within fossil fuels. Vanadium is harder than most metals, while retaining malleable and ductile features, and is corrosion-resistant to various chemicals, including alkalis, hydrochloric and sulfuric acids and salt water. Vanadium also has high melting and boiling points of 1910°C and 3407°C, respectively, enabling it to retain its solid form in a variety of external conditions.

 

These key properties make vanadium ideal for use in metal and steel alloying as it helps reinforce the level of strength, toughness and heat and chemical resistance required for various industry applications such as construction, aerospace and automobiles.

 

Vanadium consumption is dominated by its use in steel applications, which, as of 2020 is estimated to account for approximately 92.5% of total global consumption. Within this application, the use of vanadium can be further distinguished between the use of vanadium in high-strength low-alloy (“HSLA”) steel, full alloy steel, carbon steel and other steels. HSLAs include small amounts of vanadium, niobium or titanium, or a combination of these microalloying elements, to induce higher strength and a finer-grained structure. The higher strength enables the use of smaller quantities of raw materials in many applications. HSLAs are considered to be a strong substitute for carbon manganese steel which has lower tensile strength.

 

The balance of global vanadium consumption, approximately 7.5% in total, is used for aerospace alloys, chemical catalysts and other specialty applications such as renewable energy. These industries and applications most often require high purity vanadium which command premium pricing.

 

Vanadium Demand Drivers

 

Reinforcing Steel Bars

 

In the construction industry, vanadium is used to achieve a certain level of tensile strength in reinforcing bars (“rebar”) and other steel components used in the construction of bridges, tunnels and buildings. Historically, a significant portion of vanadium demand had been driven by “Grade-3” rebar standards in the western world. This end market experienced significant growth starting in 2004 when China adopted “Grade-3” rebar standards aimed at improving structural performance during seismic events. However, in recent years, demand in this application in China has been degraded by the illegal utilization of the quench and temper method (the “Q&T method”), which allows the steel to meet the “Grade 3” tensile strength requirements but not the critical elongation requirements that assure good performance in seismic activity. However, China responded to this trend and is aiming to prevent the use of the Q&T method through the introduction of new rebar specifications made effective November 1, 2018 that cannot be achieved with the Q&T method. This is currently causing Chinese producers of rebar to revert back to employing the use of vanadium alloyed steels. The revised standard also eliminates grade 2 rebar which is lower strength and can be produced without any microalloy.

 

Shifts in consumer preferences and government fuel efficiency standards requiring more fuel-efficient vehicles are encouraging automobile manufacturers to adopt HSLA steel in automotive applications. Vanadium-containing HSLAs

 

10

 

and other high-strength steels provide the desirable physical properties required to meet crucial automotive standards, including stiffness, crash performance and forming characteristics, while remaining competitive with other lightweight alternatives, such as carbon fiber reinforced polymers. We anticipate this optimal cost-weight-strength ratio will drive vanadium demand in automotive end market uses.

 

High Performance Alloys

 

Vanadium is also used in the production of high performance alloys, specifically titanium alloys primarily used in the aerospace industry. Titanium-vanadium alloys’ low density, high strength and excellent fatigue properties make it a key input to aerospace engines, gas turbines and airframes. Titanium-vanadium alloys accounted for approximately 2.1% of global vanadium consumption in the first three quarters of 2020. The aerospace industry was severely impacted in 2020 due to the COVID pandemic. A slow and gradual recovery of demand for this sector to pre-COVID levels is expected until 2025.

 

Chemicals & Catalysts

 

Vanadium is used in catalysts for production of sulfuric acid and synthetic rubber as well as a wide range of small volumes applications in chemicals, such as corrosion inhibitors, medicine, dyes, and glass. These industries accounted for approximately 3.7% of global vanadium consumption in the first three quarters of 2020 and consumption remained strong throughout the year.

 

Energy Storage Systems

 

Over the long term, we expect new applications to drive incremental demand for vanadium use, especially certain specialty applications that demand high purity vanadium content. While these sources of demand only account for approximately 1.7% of existing consumption today, we expect the ongoing fast growth for long duration energy storage to spur additional long term demand for vanadium. Global climate change trends are also encouraging the research and implementation of battery systems to support renewable energy sources. VRFB, which use vanadium ions in different oxidation states to store potential chemical energy, are considered to be a cost competitive alternative to lithium ion technology for large scale, long duration energy storage. We believe our high purity products are well positioned to take advantage of these quickly growing end markets.

 

Vanadium Supply Trends

 

Vanadium supply dynamics are primarily driven by both the nature of production methods and the location of vanadium sources. Because vanadium exists naturally in an oxidized form, it is typically derived from the processing of vanadium-bearing ores, slag or residues and then converted into an intermediate vanadium oxide product. The majority of vanadium is extracted from vanadium-bearing slag, a by-product of the steel making process in regions where vanadium-rich titaniferous magnetite (“VTM”) deposits are present. VTM ores are processed in steel mills, with the vanadium-bearing slag subsequently processed for vanadium extraction. Due to its by-product nature, vanadium supply from steel production is generally price-inelastic with supply driven by underlying trends in the steel industry and competitiveness of the specific iron ore mines and steel mills utilizing VTM ore, rather than by output from primary mining operations. For example, significant growth in steel production in China from 2004 to 2014 resulted in an eightfold increase in vanadium slag production derived from steel making. In 2020, steel mills in China, Russia and New Zealand supplied approximately 70% of vanadium through their slag by-product.

 

The cost competitiveness of these sources is greatly influenced by the initial cost of the primary products, rather than the cost of extracting vanadium from the slag. This has meaningful implications on slag-sourced vanadium globally. While Chinese and Russian steel mills are the major sources of vanadium as a by-product from steel production, these sources are becoming less competitive in the global steel market since the locally sourced VTM ores used in these steel mills are typically high in titanium and low in iron. In particular, the uneconomic nature of these select VTM ores relative to seaborne iron ores that do not contain vanadium has led to diminished use of VTM ores in steel production at some vanadium producing mills. This has in turn led to a meaningful reduction in supply of vanadium from slag. Examples of such significant shutdowns include the liquidation of the Mapochs Mine following closure of Highveld Steel and Vanchem

 

11

 

Vanadium Products in South Africa and discontinuation of the use of VTM ore at the Jianlong Steel Group’s Heilongjiang steel mill. The continued growth in Chinese seaborne iron ore imports (which contain no vanadium) partially replacing locally mined VTM ore is expected to further limit vanadium supply from slag processing.

 

The next largest source of vanadium supply is from mining operations where vanadium is the primary commodity produced. Primary producers based in South Africa, Brazil and China extract vanadium directly from VTM ores, which accounts for 18% of supply. Because these projects are not associated with any steel processing, their relative cost competitiveness is largely influenced by mine-specific factors, most importantly ore grade. Primary production of vanadium in China is sourced from a carbonaceous shale known as stone coal, which contains a relatively low grade of 0.2% to 1.0% of vanadium. The Company’s Maracás Menchen Mine is one of only three large-scale primary vanadium mines globally.

 

The remainder of global vanadium supply is derived from secondary vanadium sources. Secondary sources are derived from residues, ashes and spent catalysts that are a by-product of the burning or refining of vanadium-bearing carboniferous materials, including coal and oils. Similar to vanadium produced in the steel making process, the economic viability of these secondary sources depends largely on the underlying trends in the markets for other materials.

 

Owing to the inexpensive, but highly constrained quantity of vanadium supply from the steel making processes, and the challenging and often expensive processes of sourcing vanadium from primary and secondary sources, the cost curve is less responsive to changes in demand levels.

 

New primary sources of vanadium are expected to be relatively limited in the next few years due to the limited number, and stage of advancement of, projects expected to come online.

 

Vanadium Prices

 

According to the Fastmarkets Metal Bulletin, price of V2O5 in Europe remained relatively constant in 2020, starting the year at $4.80 to $5.85 per pound of V2O5 and ending the year at $5.30 to $5.50 per pound V2O5, averaging $5.37 to $6.04 per pound of V2O5 throughout the year. From January 2021 to March 2021, the price of V2O5 has increased significantly and as of March 12th, 2021, V2O5 was trading in the range of $8.00 to $8.65 per pound of V2O5 in Europe.

 

Material Project  — Maracás Menchen Mine

 

Technical Report

 

At present, the only material project of the Company for the purposes of NI 43-101 is the Maracás Menchen Mine and the primary focus of the Company is to continue to meet and exceed nameplate capacity at the Maracás Menchen Mine on a consistent and continued basis.

 

A report entitled “An Updated Mine Plan, Mineral Reserve and Preliminary Economic Assessment of the Inferred Resources” and issued on October 26, 2017 and effective as of May 2, 2017 (the “Technical Report”) was prepared for the Company by GE21 Consultoria Mineral Ltda. (“GE21”). The Technical Report is available under the Company’s profile on SEDAR at www.sedar.com and on the Company’s website at www.largoresources.com.

 

The following information is based, in part, on Technical Report. Non-material updates since the date of the Technical Report are based on the Company’s previously filed financial statements and MD&As. The entire Technical Report is incorporated by reference herein, and readers are encouraged to review the complete text of the Technical Report. A full list of references cited by the authors are contained in the Technical Report. Porfírio Cabaleiro Rodriguez, Mining Engineer, BSc (Mine Eng), MAIG employed by GE21, Leonardo Apparicio da Silva, Mining Engineer, BSc (Min Eng), MSc (Met Eng), MAIG associated to GE21, and Fabio Valerio Xavier, Geologist, BSc, Geol, MAIG associated to GE21, are the Qualified Persons as defined in NI 43-101 responsible for the Technical Report and are all independent of the Company.

 

The Technical Report is intended to be read as a whole, and sections should not be read or relied upon out of context. The Technical Report contains the expression of the professional opinions of a Qualified Person (as

 

12

 

defined under NI 43-101) based upon information available at the time of preparation of the Technical Report. The following disclosure, which is extracted in part from the Technical Report, is subject to the assumptions and qualifications contained in the Technical Report.

 

Project Description, Location and Access

 

The Maracás Menchen Mine is a high-grade, open pit vanadium mine located in the state of Bahia, Brazil that began producing V2O5 flake in the third quarter of 2014. The mine produces V2O5 rich ore which is sent to an on-site processing plant which produced 11,825 tonnes of V2O5 flake in 2020.

 

The Maracás Menchen Mine is located within the greater municipality of Maracás in the eastern Bahia State Brazil and lies approximately 250 km southwest of the city of Salvador, the capital of Bahia. Access to the Maracás Menchen Mine is via paved secondary road from the main coastal highway to the town of Maracás (350 km) and then a further 50 km via secondary highway and gravel road to the mine site. Access to water, the electrical power grid and railroad is within reasonable distance, and a trained workforce and local unskilled labour is available within the State of Bahia, the country of Brazil and the town of Maracás.

 

The property consists of eighteen (18) concessions totalling 17,690.5 hectares, and all of the permits are owned 100% by Vanádio de Maracás S.A. (“Vanádio”), which is controlled 99.94% directly and indirectly by Largo. Of this total, Vanádio controls two Mining permits of 1,000 hectares each, and one exploration permit (977.20 hectares). Largo controls the remaining fourteen exploration permits and final mining permit (1,713.88 hectares). All concessions are in good standing and there are no underlying royalty payments to any private entities. Companhia Baiana de Pesquisa Mineral (“CBPM”), an entity owned by the Bahia State Geological Survey, owns the underlying minerals rights to most of the project area, with the exception of NAN which is owned by Vanádio. Under an agreement, CBPM retains a 3% royalty on gross sales revenue for all of the concessions with the exception of NAN. The property is also subject to a royalty of 2% on certain operating costs under the Brazilian Mining Act and, under a separate agreement, Anglo Pacific PLC receives a 2% net smelter royalty in the Maracás Menchen Mine. Otherwise, the concessions are free and clear of mortgages, encumbrances, prohibitions, injunctions and litigation.

 

Exploration licences are granted by the National Mining Agency (“ANM”) based on an improved plan for a period of one to three years, with an option to extend for an additional three years. Annual fees of R$3.29 per hectare are paid on the first term and R$5.00 per hectare are paid on the second term. Once the exploration plan is completed, the licensee must submit a final exploration report and if the report is approved, they have up to one year to apply for an extraction licence. Once ANM has approved the final report carried out under the exploration licence the applicant moves to an extraction licence application. The extraction licence describes the details of an economic analysis of the project including environmental impacts, methods of operation and a plan for mine closure. Once approved by the ANM, exploitation permits are granted. Royalties are then payable to the government on products mined.

 

Largo reports that, to its knowledge, there are no existing permitting, environmental liabilities or other significant factors that would affect title or access with respect to the Maracás Menchen Mine.

 

History

 

Over the past 30 years, the Maracás Project has undergone several phases of exploration and economic evaluation, including geophysical surveys, prospecting, trenching, diamond drilling programs, geological studies, resource estimates, petrographic studies, metallurgical studies, mining studies and economic analyses. These studies have advanced the Maracás Project to its present status of an operating mine.

 

Exploration of the Rio Jacaré Sill by geologists of the CBPM initiated in 1980 during a regional geological survey and resulted in the discovery of VTM occurrences on what is now the Maracás Menchen Mine. Additional geological mapping, geochemistry, geochemical surveying, pitting, trenching and limited drilling was completed by CBPM.

 

In 1984 the CBPM formed a joint venture with the Odebrecht Group (“Odebrecht”) who took over exploration of the project area and over the subsequent six years completed extensive geological and technical work. This work resulted in

 

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Odebrecht owning 93% of the project. In the early 1990’s Odebrecht formed a 50/50 joint venture with CAEMI (Vale) with the intent of bringing additional mining, metallurgical and marketing expertise to help advance the project. Substantial work including diamond drilling, metallurgical studies, resource calculations and mine planning were carried out and numerous prefeasibility, feasibility and marketing studies were completed culminating in a 1999 Economic Update Report. In 2006, Largo (through Vanádio) signed an option agreement with Odebrecht and Vale for the Maracás Project giving Largo the right to acquire a 90% interest in the project. In 2012, largo exercised the option and acquired the interests of both Odebrecht and Vale resulting in Vanádio owing 99.94% of the Maracás Project. Since the acquisition Largo has completed additional detailed engineering work and began construction of the Maracás Menchen Mine in June 2012. The Maracás Menchen Mine was commissioned March 2014 and production has steadily increased from 5,810 t/a in 2015 to a record 11,825 t/a in 2020.

 

Geological Setting, Mineralization, and Deposit Types

 

The Rio Jacaré Sill (the “RJS”) is a mafic-ultramafic intrusion, which hosts the Maracás Project vanadium mineralization, and is located in the south-central part of Bahia state in northeastern Brazil. It lies within the Archean São Francisco craton, which in this area is composed of the Contendas-Mirante Complex and the Gavião and Jequié blocks. The RJS is located on the eastern edge of the Contendas-Mirante supracrustal sequence, which forms a large anticlinorium trending approximately north-south. The supracrustal rocks are located between the early Archean Gavião block to the west, which is composed predominantly of tonalite-trondhjemite granodiorite, and the Archean Jequié block to the east, which is composed predominantly of charnockite and enderbite intrusive rocks with strong calc-alkaline affinities and granulite facies metamorphic rocks. The Contendas-Mirante sequence is thought to be younger than the adjacent Gavião and Jequié blocks and consists of an Archean basal volcanic unit overlain by a Paleoproterozoic member containing flysch and metavolcanic rocks that are overlain by a clastic member.

 

The RJS is composed mainly of gabbro. The intrusion has been described previously as a sill intruded into the volcanic rocks of the lower unit of the Contendas-Mirante gneissic complex. However, the RJS is fault bounded to the east and west, and therefore, its contacts with both the Contendas-Mirante sequence and Jequié block are tectonic.

 

The RJS is a linear, sheet-like structure that strikes N 20° E and dips approximately 70° to the east. The intrusion has been identified over a length of 70 km and has an average width of 1.2 km. The Campbell Pit contains the largest concentrations of vanadium-rich magnetite known on the property to date. This deposit crops out over an area of approximately 400 m along strike, up to 150 m width and is known to extend to approximately 350 m vertical depth, where it remains open. The Campbell Pit has been disrupted by northwest-southeast faulting. It is composed of magnetite grading into magnetite-rich pyroxenite, pyroxenite, and then gabbro which contains layers or lenses of magnetite-bearing pyroxenite that are sometimes sheared. The main magnetite body is on average about 25 m thick and thins to the south.

 

Within the Maracás Project the RJS can be traced for the full 8 km underlying the exploration permits north of the Campbell Pit. Six known VTM deposits including the Campbell Pit, Gulçari A Norte and Gulçari B (collectively “GAN”), São José (“SJO”), Novo Amparo (“NAO”) and Novo Amparo Norte (“NAN”), (collectively the “Near Mine Targets” or “NMT”, also referred to as ‘Satellite Deposites’ in the Technical Report) have been identified within the intrusion. The RJS can be traced a further +25 kilometers south of the Campbell Pit and Largo controls much of this area with additional exploration permits.

 

The NMT consist of magnetite closely associated with pyroxenite layers and hosted in gabbro. The magnetite layers have widths between <5 to+ 13 m and lengths of up to 250 m, with the layers being locally truncated or offset by faulting.

 

Based on extensive drill programs in 2018 and 2019, re-logging of holes from old drilling campaigns, geological mapping and geophysical signatures, the RJS was interpreted as similar to tube/funnel transition “Eagle/Kalatonke Type” mafic to ultramafic layered intrusion, a pathway stagnated magmatic chamber with periodical injections of magma denominated as magmatic cycles.  Cycles are divided according to the phase stratification of the mineral magnetite. Processes such as fractional crystallization and magma mixing are highlighted as the main drivers to changes in parameters such as pressure and oxygen fugacity, which provided for the formation of known mineralisation.

 

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In total, 10 magmatic cycles have been identified in RJS, in response to successive magma inputs in an open system (cycle C1 to cycle C10). Cycles C1 to C3 appear to be restricted to the Campbell Pit, where more robust layers of magnetite and ultramafic rocks were formed.  These layers are currently being mined in the Gulçari A (Campbell Pit) deposit. Cycles C4 to C10 have been defined to the north and south beyond Campbell Pit, with successive layers of magnetite associated with mafic rocks such as magnetite-gabbro, gabbro to anorthosite. These layers give rise to the deposits called NMT in the RJS. This genetic model may also explain the higher levels of vanadium in the Gulçari A deposit, associated with more primitive magmas richer in vanadium metal.

 

Sulphides account for up to 1% of the rock in the magnetite. The major phases are chalcopyrite and pentlandite with only very minor pyrite and pyrrhotite. High platinum and palladium (“PGM”) values have been found in the magnetite zones in the RJS. The association of PGM enrichment with magnetite layers in the RJS has similarities with the Rincón del Tigre, Skaergaard and Stella Complexes as well as the Bushveld Complex.

 

Exploration

 

Ongoing exploration is conducted on the NMT with the primary goal of supporting mining activities and increasing estimated Mineral Resources and Mineral Reserves available for mining. All existing exploration information is being compiled into a comprehensive 3D model to allow for evaluation and prioritization of exploration efforts.

 

Beginning in 2007, Largo carried out significant geological work and interpretation over the project area. The entire property has been covered by 175 line-km of line cutting. The grid lines are 2.5 km long and oriented east-west with 100-m line spacing and 25-m stations along the lines. This line cutting work was done to facilitate geological mapping, sampling and ground geophysical surveys (magnetic and induced polarization). Geological mapping was done at a scale of 1:2,500 over the entire property concentrating on favourable areas that had a limited amount of information. This work was completed to get a better understanding of the area’s potential prior to conducting further drill testing.

 

Ground magnetic surveying (175 line -km) was completed over the entire property and total of 136 line-km of induced polarization surveying was completed on the property to help define magnetic horizons within the RJS. Geophysical surveys were important during the early of work to define targets for future drilling.

 

Data compilation, re-logging and additional resampling of previously drilled holes (1981 to 1986) were undertaken. This work was done to correlate the lithologies between holes and from section to section, and to test the platinum and palladium potential of the deposit to better understand the geological setting.

 

Exploration has resulted in significant opportunity to advance the NMT to host Mineral Resource estimates in support of the overall mine complex and long-term mine planning.

 

Drilling

 

Mineral Resources and Reserves are estimated based on information from surface drill holes. Prior to Largo’s activity at the Maracás Project, previous operators had drilled 53 diamond drill holes (5,153 m) on the Campbell Pit, and 13 diamond drill holes (661 m) on targets within the overall mine property. Largo completed three exploration drill campaigns at the Maracás Project (2007, 2008 and 2011-2012) with 56 drill holes (14,525 m) directed at the Campbell Pit and 84 drill holes (15,058 meters) targeting other deposits within the mine property. Between September 2012 and January 2013, Largo completed an infill drill program consisting of 103 vertical drill holes (3,929.35 meters) at the Campbell Pit. The program was designed to further identify and delineate the first 2 to 3 years of mining at the Campbell Pit. Holes were spaced on 12.5 m centers and encompassed an area of about 300 m by 150 m.  Since 2018, Largo has continued to advance a drilling program focused on the NMT deposits and other potential targets.

 

For additional information on more recent drilling carried out on NAN see “Description of the Business — Exploration, Development and Production”.

 

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Sampling, Analysis, and Data verification

 

Several periods of diamond drilling by different operators have resulted in somewhat varying sampling procedures. The actual sampling method carried out by CBPM (1981 and 1983) is not known, but during visits to the core facility it was observed that the core had been carefully half cut with all holes available for inspection. Clearly marked sample intervals were evident in all core boxes and it was concluded that sampling had been carried out in a very professional manner.

 

Drill core sampling during the Odebrecht period was also completed to industry standards and half sawn core was carefully logged and sampled. Sampled core was secured and shipped via commercial trucks to SGS GEOSOL Laboratorios Ltda. (“SGS”) (1983-1987) and Paulo Abib Engenharia S.A. laboratory (1985 to 1987) both located in Belo Horizonte. In total, 1,675 core samples were analysed at SGS and Paulo Abib Engenharia. Samples were analysed for FeO, Fe2O3, SiO2, TiO2 and V2O5.

 

In 2006 and 2007, Largo undertook an extensive program of core relogging and sampling. Largo personnel collected quarter cut drill core samples which were then placed into sealed in plastic bags with corresponding sample tags. Samples were shipped via company truck to Salvador where they were handed over to a commercial trucking company for shipment to SGS in Belo Horizonte. Analytical quality control utilized by Largo included the insertion of blanks, referenced material samples and duplicates on a regular basis for all batches submitted for analysis. CBPM and Odebrecht sample pulps remain available to Largo.

 

All sample preparation and analysis of drill core from the 2006/2007 resampling program and all Largo directed drill programs were performed by SGS in Belo Horizonte, Brazil and Lakefield Ontario, Canada. During infill drilling at the Campbell Pit in 2012 both SGS in Belo Horizonte and Intertek in Cotia, Brazil were used for sample preparation and analysis. Samples were analysed for FeO, Fe2O3, SiO2, TiO2 and V2O5 by the XRF method and for platinum and palladium by 50 g fires assay at SGS. This was modified to a 20 g fire assay for the 2007 and later drill programs. SGS “complies with the requirements of the international standards ISO 9001:2000 and ISO 14001:2004 for chemical analysis and geochemistry of soils, rocks and ores” (SGS Minerals, 2006). Intertek also complies with ISO 9001:2008 for chemical analysis and geochemistry of soils, rocks and ores.

 

In 2015 Largo initiated Davis Tube test work to improve their understanding of vanadium in the ore at the Campbell Pit. This work was used to determine the magnetic percentage and the SiO2 and V2O5 grades in the magnetite concentrate. This work was completed by SGS. In total, 7,567 pulp samples collected from previous drill programs were analysed. A pulp duplicate, and one certified standard were inserted into every 40 sample batch.

 

Data verification work completed by Largo and Micon has led to confidence in the database compiled by the original owners of the property. Largo’s ongoing quality assurance and quality control program has also led to confidence in the newly generated data.

 

In 2019, Largo engaged ALS Global Brazil, based in Belo Horizonte for all drilling and sampling preparation and analytical services.

 

Mineral Processing and Metallurgical Testing

 

The original process design was based primarily on the metallurgical test work performed by SGS in 2007, a study undertaken by IMS Processing plant in 1990, a feasibility study completed by Lurgi in 1986, a metallurgical study performed by Rautaruukki Oy Research Centre between 1987 and 1989, and the detailed technical study produced by Engenharia e Consultoria Mineral S.A. (ECM) in 1990. A list of metallurgical and process technical and economic references can be found in Section 13.2 of the Technical Report.

 

Test work was undertaken by SGS between April and November 2007 to investigate the recovery of vanadium from the Maracás Project mineralization. This program included mineral processing investigations using magnetic separation to recover vanadium contained in magnetite and hydrometallurgical extraction using roasting, leaching, precipitation and calcining to produce an intermediate vanadium oxide product. Additional SGS test work was undertaken in 2012 to

 

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investigate beneficiation recoveries and concentrate analyses for the additional ore-bodies included in the expanded plan presented in the Technical Report.

 

Pilot scale testing was undertaken by Largo in 2010 to test bulk samples of high grade and low-grade ore with respect to recovery and leaching performance.

 

After completion of the Definitive Feasibility Study (“DFS”) in 2010, at the request of the financing bank’s technical consultant, a pilot scale program was initiated to prove the viability of producing V2O5 from the Maracás Project ore and to confirm the process data reported in the feasibility study. Test work was done at Fundação Gorceix and involved obtaining a sample of the Maracás Project ore, beneficiating the ore to produce a V2O5 concentrate and then roasting the concentrate in a kiln to convert vanadium into a soluble form.

 

The roasted concentrate was then leached in water to produce a vanadium solution that was further processed through de-silication and ammonium metavanadate (“AMV”) precipitation steps. The AMV thus produced was then analyzed and calcined at SGS to produce V2O5. The complete process route has been described in the DFS.

 

It was not possible with available facilities to pilot the production of V2O5 and Ferrovanadium from AMV. Since these are state of the art technologies utilized by major Ferrovanadium producers their exclusion from the pilot program was considered acceptable as long as the AMV produced was of acceptable quality.

 

Mineral Resources and Mineral Reserve Estimates

 

On October 16, 2017 Largo disclosed Mineral Reserve and Mineral Resource estimates with an effective date of May 2, 2017 in a report titled Maracás Project, Bahia, Brazil, An Updated Mine Plan, Mineral Reserve and Preliminary Economic Assessment of the Inferred Resources, prepared by GE21 Consultoria Mineral.

 

The Mineral Resources for the Campbell Pit are estimated from drill core information stored in a secured central database and were evaluated using a geostatistical block modelling approach. A three-dimensional block model was generated to enable grade estimation. The selected block size was based on the geometry of the domain interpretation and the data configuration. The block size of 5 m E by 5 m N by 5 m RL was selected. The “percent” block modelling technique was used to represent the volume of the interpreted wireframe models. Sufficient variables were included in the block model construction to enable grade estimation and reporting.

 

Resource estimation for the Campbell Pit was undertaken using ordinary kriging (“OK”) as the principal estimation methodology for V2O5. The OK estimates were completed using Gemcom mining software. In 2016, Largo updated the Mineral Resource estimate for the Campbell Pit as a result of depletion of mined resources. This Measured and Indicated Resource was used to update the reserve and used for the new mine plan presented herein.

 

The new block model incorporates percent magnetics (percent of magnetic minerals in the mineralized rock) and magnetite concentrate grade for V2O5 and SiO2. No new drilling was available for the estimate; however, it was adjusted for mining completed to date. The updated Mineral Resources for Campbell are presented below:

 

Campbell Mineral Resources - Maracás Project

Effective date: May 02nd 2017

 

Category

 

Tonnes
(million)

 

V2O5 Head
Grade (%)

 

V2O5 Contained
 (kt)

 

V2O5 in 
Concentrate (%)

 

Magnetics (%)

 

Measured (M)

 

18.08

 

1.19

 

215.0

 

3.19

 

30.55

 

Indicated (I)

 

1.70

 

1.28

 

21.7

 

3.12

 

34.64

 

M&I

 

19.78

 

1.20

 

236.7

 

3.19

 

30.90

 

Inferred

 

1.65

 

1.20

 

19.8

 

3.10

 

33.08

 

 

Notes:

 

(1)                                 Mineral Resources within a pit shell using $34.20/t all in operating cost and reported at a 0.45% V2O5 cut-off, reviewed and confirmed by Fabio Valério Xavier (GE21).

 

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(2)                                 Mineral Resources are classified as Measured, Indicated and Inferred based on relative levels of confidence in their estimation and on technical and economic parameters consistent with the methods most suitable to their potential commercial exploitation.

 

(3)                                 The Measured and Indicated Resources listed in the table above are inclusive of Mineral Reserves.

 

(4)                                 The Mineral Resource and Mineral Reserve estimates are reported in accordance with the NI 43-101 and the Canadian Institute of Mining, Metallurgy and Petroleum Definition Standards on Mineral Resources and Reserves (CIM Definition Standards) as a minimum standard.

 

Mineral Reserves have been estimated for the Campbell Pit with an effective date of May 02, 2017. The mine plan developed in the Technical Report is based on Measured and Indicated Resources only as delineated in the table above. Reserves are reported using a sales price of $6.34/lb of V2O5. The ultimate pit design and mine plan was done to optimize kiln feed. The open pit Mineral Reserve estimate is based on a mine plan and open pit designs developed using modifying parameters including metal prices, metal recovery based on performance of the processing plant, operating and sustaining capital cost estimates based on the production schedule and equipment requirements. Other factors including; dilution, mining recovery, shipping terms, geotechnical characteristics of the rock mass, and the likelihood of obtaining land title, required permits environmental, social and legal licenses may affect the final Mineral Resources and Reserves, see “Risk Factors”.

 

The Mineral Reserves presented below were estimated by Porfírio Cabaleiro Rodriguez of GE21, who is a qualified person under NI 43-101 and a Member of the Australian Institute of Geoscientists.

 

Campbell Mineral Reserves - Maracás Project

Block dimensions 5x5x5 (m) - Mine Recovery 100% and Dilution 5%

Effective Date: May 02, 2017

 

Reserve Category

 

Tonnage (kt)

 

% V2O5 Head

 

% Magnetics

 

%V2O5 con

 

V2O5
Contained (kt)

 

Proven

 

17,570

 

1.14

 

29.66

 

3.21

 

167.3

 

Probable

 

1,440

 

1.26

 

33.89

 

3.20

 

15.6

 

Total in pit Reserve

 

19,010

 

1.15

 

29.98

 

3.21

 

182.9

 

 

Notes:

 

(1)                                 A Probable Mineral Reserve is the economically mineable part of an Indicated Mineral Resource, and in some circumstances, Measured Mineral Resource.

 

(2)                                 A Proven Mineral Reserve is, in most common circumstances, the economically mineable part of a Measured Mineral Resource.

 

(3)                                 Mineral Reserves are included in Measured and Indicated Resources.

 

(4)                                 The reference point at which Mineral Reserves are defined is the point where the ore is delivered from the open pit to the crushing plant.

 

(5)                                 The Mineral Resource and Mineral Reserve estimates are reported in accordance with the NI 43-101 and the CIM Definition Standards on Mineral Resources and Reserves (CIM Definition Standards) as a minimum standard.

 

Largo completed a revised block model and updated Mineral Resource estimate for the NMT incorporating the drilling from the 2011 program including 72 holes totalling 13,401 m. The NMT, which extend north from Campbell Pit (originally the Gulçari A deposit) for eight kilometres include from south to north: GAN, SJO, NAO and NAN. All are hosted within the RJS.

 

The NMT Mineral Resources below are based only on drilling to the end of 2012.  Additional exploration work commencing in 2018 is set out under the heading “Description of the Business — Exploration, Development and Production” below. The Mineral Resources for the NMT in the table below are considered current with the exception of the NAN deposit as described below.

 

Near Mine Targets Mineral Resources

Effective date: May 02, 2017

 

Deposits

 

Category

 

tonnes (kt)

 

V2O5 (%)

 

Contained V2O5
(tonnes)

 

Gulçari A Norte**

 

Inferred

 

9,730

 

0.84

 

81,388

 

Gulçari B**

 

Inferred

 

2,910

 

0.70

 

20,312

 

Novo Amparo**

 

Inferred

 

1,560

 

0.72

 

11,255

 

Novo Amparo Norte**

 

Inferred

 

9,720

 

0.87

 

84,453

 

Sao Jose**

 

Inferred

 

3,900

 

0.89

 

34,706

 

Near Mine Targets (Total)**

 

Inferred

 

27,820

 

0.83

 

232,114

 

 

** Resource within a pit shell using $34.20/t all in operating cost and reported at a 0.45% V2O5 cut-off, reviewed and confirmed by Porfirio Cabaleiro Rodriguez (GE 21).

 

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Mining Operations

 

The completion of the Expansion of the Maracás Menchen Mine in December 2019 increased our production to 10,577 t in 2019, with a new name plate capacity of 1,000 tonnes per month. Currently Largo has a mining fleet which consists of six hydraulic excavators equipped with a 3.5-5 m3 bucket and a total of 36 Mercedes Benz 36-tonne capacity trucks. The contract drilling fleet consists of six Sandvik Ranger DX800 rotary drill rigs. A fleet of ancillary equipment is also available for mine maintenance and eventual plant services.

 

In 2020, mining operations at the Campbell Pit moved 1,087,515 million tonnes of ore and 9,701,910 million tonnes of waste. The overall life of mine (“LOM”) show total mining of 19.73 million tonnes ore and stockpile and 60.21 million tonnes of waste for an overall strip ratio of 3.14. LOM average head grade of V2O5 of 0.96% and 76% global recovery. As of May 2, 2017, the effective date of the Technical Report, the LOM was estimated at 11 years.

 

Processing and Recovery Operations

 

The Maracás Menchen Mine vanadium recovery plant was commissioned in 2014 and has been in start-up mode for much of that time ramping up to near design capacity. At the time of writing the Technical Report, the plant produces up to 800 t/month, equivalent to a production rate of 9,600 t/a of V2O5.

 

The current process flow sheet comprises the following: three stages of crushing, one stage of grinding, two stages of magnetic separation, magnetic concentrate roasting, vanadium leaching, ammonium meta-vanadate (AMV) precipitation, AMV filtration, AMV calcining, and fusing to V2O5 flake as final product. A simplified process flow diagram for the production of V2O5 is presented in the Technical Report.

 

Originally sized to process 960,000 t/a run of mine, the plant will be capable, after due modification, to process 1,900,000 t/a of feed ore with an average grade of 0.9% V2O5, 81% global recovery, and produce 13,200 t/a V2O5 by 2020. The plant is designed to operate 365 days per year, 7 days/week, 24 hours/day with an on-stream factor of 87%.

 

In 2020, annual global recovery from ore of V2O5 reached 81.5%.

 

Capital and Operating Costs

 

All capital expenditures are treated as sustaining capital expenditures for purposes of the Technical Report and the related cash flow analysis, and was estimated for the whole Maracás Project at $71 million. The expansion project, which was completed in 2019, accounted for $21 million and increased production capacity to 1,000 t/month. In January 2021, Largo completed feed rate improvements on the kiln which is expected to increase nameplate production capacity to 1,100 t/month. The kiln feed rate improvements were completed for approximately US$1.3 million.

 

A constant value of $3 million per year was provided for plant maintenance and spare parts, and an additional US$2 million in plant improvement projects.

 

Additional sustaining capex of $1.5 million was estimated for mine drainage, $4.3 million was estimated for exploration, and $8.8 million for non-magnetic dams and chloride ponds.

 

Operating and administrative costs are based on real costs that are regularly incurred by Largo and are summarized below:

 

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Average Operating Cost Summary

 

Operating Cost

 

$

 

Mining (US$/t earth moving)

 

2.45

 

Processing (US$/lb V2O5)

 

1.78

 

General and Admin (US$/lb V2O5)

 

0.18

 

Royalties (CBPM, owner, CFEM, AP) (US$/lb V2O5)

 

0.34

 

 

Exploration, Development, and Production

 

In 2018 exploration activities at the Campbell Pit included a close spaced diamond drilling program of 31 holes (2,323 meters) designed to give greater detail to the ore body and help to guide mine production over the next two to three years. This program began in the middle of April 2018 and was completed on May 30, 2018. The data was modelled and used for mine planning and development purposes. Consultants from GE21 assisted in the modelling.

 

Phase II included a 4,950 metre drilling program focused on upgrading and expanding the NMT and along strike high priority targets. Drilling began on June 4, 2018 with two rigs focused at NAN and the Company completed 24 holes totalling 4,223 meters prior to December 31, 2018. This included 13 infill and 11 step out holes. On December 19, 2018, the Company announced that this program had expanded the mineralization to the north and south at NAN, defining targeted mineralisation over a strike length of 1.84 kilometers. Infill drilling was designed to upgrade the resource category at NAN.

 

Additionally, seven holes were drilled on targets south of the Campbell pit. The drill program was completed on October 23, 2018.

 

Previous drilling at NAN completed by the Company from 2011 to 2012 outlined a consistent zone of mineralisation over 790 meters with an average width of 18 meters and an average grade of 0.87% V2O5. The 2018 program was successful in extending mineralisation both to the north and south along strike for a total length of approximately 1,840 meters. The deposit remains open to the south and to depth.

 

The Company extended the Phase II definition drilling program at NAN in the first quarter of 2019.  Diamond drilling was initiated at NAN on January 15, 2019. In total, 47 diamond drill holes (5,404 meters) were completed. The work focused on increasing confidence in the resource categories and extending mineralisation at depth and along strike. This program was completed mid-February 2019. The exploration program resulted in the conversion of Inferred Mineral Resources to Measured and Indicated categories, in addition to increasing the overall Inferred Mineral Resources. On June 11, 2019, the Company reported a new resource estimate for NAN on 12,912 meters (88 drill holes) of drilling with an effective date of May 31, 2019.

 

Novo Amparo Norte Mineral Resource Estimate

Effective date: May 31, 2019

 

Category

 

Tonnes (mt)

 

Head Grade
V2O5 (%)

 

Magnetite (%)

 

Magnetic
Concentrate
V2O5 (%)

 

Contained V2O5
Magnetic
Concentrate
(tonnes)

 

Measured

 

6.25

 

0.91

 

33.1

 

2.32

 

48,046

 

Indicated

 

5.98

 

0.85

 

28.1

 

2.50

 

41,996

 

Total M & I

 

12.23

 

0.88

 

30.7

 

2.41

 

90,042

 

Inferred

 

11.33

 

0.90

 

31.2

 

2.46

 

86,960

 

 

Notes:

 

(1)                                 Mineral Resources have been classified using the Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”), CIM Standards on Mineral Resources and Reserves, Definitions and Guidelines prepared by the CIM Standing Committee on Reserve Definitions and adopted by the CIM Council.

(2)                                 Mineral Resources which are not Mineral Reserves do not have demonstrated economic viability. The Inferred Mineral Resource in this estimate has a lower level of confidence than that applied to the Measured and Indicated Mineral

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Resource. It is reasonably expected that a portion of the Inferred Mineral Resource could be upgraded to an Indicated Mineral Resource with continued exploration.

(3)                                 Magnetite content is determined by Davis Tube Test methodology. V2O5 content of the magnetite concentrate was determined by XRF79C methodology at the SGS facility in Belo Horizonte, Brazil.

(4)                                 Cut-off grade for this calculation was 0.45% V2O5 head grade.

(5)                                 Numbers may not add up exactly due to rounding.

 

Exploration work shifted to the Novo Amparo (NAO) deposit where 4,646 meters (24 drill holes) of drilling were completed. Drilling was also undertaken at the São José (SJO) deposit where 2,813 meters (18 drill holes) of drilling were completed. Further drilling was carried out on the Gulçari A Norte and Gulçari B (now considered one target known as Gulçari A Norte or GAN) where 21 drill holes (3,501 m) were completed. Drilling on all targets focused on extending and upgrading known mineralisation as defined in the 2017 Technical Report. The Company also completed 1,177 meters of drilling (three holes) near the Campbell Pit to explore for target horizons down dip and along strike of the current reserve area. South of the Campbell Pit, 16 diamond drill holes (2,313 m) were completed on the Gulçari A South (GAS) target.

 

Largo engaged ALS Global Brazil for all drilling and sampling preparation and analytical services.

 

Plans for surface exploration over the Maracás Project area includes an estimated 23,500 meters of diamond drilling, significant analytical and Davis Tube test costs, resource modelling, metallurgical testing and additional ground geophysical surveying to further identify and/or define additional targets for diamond drilling and resource studies. The total exploration expenditure for 2020 was $2.0 million.

 

Specialized Skill and Knowledge

 

All aspects of the business of the Company require specialized skill and knowledge. Such skill and knowledge include the areas of geology, drilling, logistical planning, engineering, construction, mine operations, metallurgical processing, environmental compliance and accounting. The Company employs or retains a number of technical personnel with relevant experience, education and professional designations, and constantly evaluates the need for additional employees and or consultants with particular expertise.

 

Competitive Conditions

 

The mineral exploration and mining business is a competitive business. The Company competes with numerous companies that have resources significantly in excess of the resources of the Company, in the search for (i) attractive mineral properties; (ii) qualified service providers and labour; (iii) equipment and suppliers; and (iv) purchasers for minerals produced. The pricing that the Company will receive for V2O5 produced from its projects will be based on global prices and, ultimately, factors that are significantly out of its control. The ability of the Company to acquire additional mineral properties in the future will depend on its ability to develop and operate its present properties, and also on its ability to select and acquire suitable producing properties or prospects for mineral development or exploration. See “Risk Factors — Risks Related to the Business and Operations”.

 

Environmental Protection and Licensing and Permits

 

The current and future operations of the Company, including development and mining activities, are subject to extensive federal, provincial and local laws and regulations governing environmental protection, employee health and safety, exploration, development, tenure, production, taxes, labour standards, occupational health, wastes disposal, greenhouse gas emissions, protection and remediation of environment, reclamation, mine safety, toxic substances and other matters. Compliance with such laws and regulations increases the costs of and delays planning, designing, drilling and developing the Company’s properties. The Company is subject to various reclamation-related conditions imposed under federal or provincial rules and permits in connection with its development and exploration. See “Risk Factors”.

 

Environmental licences associated with a mining project in Brazil involve the issuance of the relevant licences by a multidisciplinary technical review team appointed by the State Council for Environmental Matters (“CEPRAM”) to review the project. This review team sets terms of reference for the environmental impact assessment (“EIA”) and the Relatório

 

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de Impacto Ambiental (“RIMA”), an environmental impact report. The RIMA summarizes the full impact assessment so that it can be reviewed by the public. See “Risk Factors — Risks Released to Brazil”.

 

Marketing and Distribution

 

Global supply of vanadium is relatively concentrated and is not readily sold on global marketplaces. Benchmark prices are generally based on the London Metal Bulletin or CRU however, due to the supply and demand characteristics of vanadium, pricing is often difficult to ascertain and is subject to wide fluctuations, see “Risk Factors — Risks Related to the Business and Operations — Our business is highly dependent upon the price of vanadium”. Global demand for vanadium is not as robust as compared to other minerals and so the marketing of vanadium products and the identification of key consumers and markets is critical to the distribution and sale of vanadium.

 

During 2020, the price of V2O5 in Europe ranged from $4.80 to $7.75 per pound and, as a March 12th, 2021, the range posted by Fastmarkets Metal Bulletin was $8.00 to $8.65 per pound.

 

Effective April 30, 2020, the Company terminated its Offtake Agreement with Glencore International AG. Until its effective termination, the Company sold, in U.S. dollars to Glencore, and Glencore acquired, 100% of the V2O5 production at the Maracás Menchen Mine. The Company and Glencore executed amendments to the Offtake Agreement which, among other things, allowed the Company to participate with Glencore on a 50:50 basis in the upside from selling VPURE+ Flake and VPURE+ Powder into specialty markets in the event that a premium was achieved on such sales. See “Risk Factors — Risks Related to the Business and Operations”.

 

With the termination of the Offtake Agreement, the Company is responsible for the marketing and distribution of all vanadium production including VPURE Flake, VPURE+ Flake and VPURE+ Powder, and assuming completion of the Ferrovanadium Conversion Plant, ferrovanadium powder.

 

Our sales and marketing teams are operating under Largo Ireland and Largo USA and have successfully built out the Company’s global sales capacity for all vanadium products having sold 10,254 tonnes of V2O5 equivalent in 2020. Mr. Paul Vollant is Director of Sales and Trading with Largo Ireland and is tasked with leading the Company’s global sales and trading efforts with a focus on the global vanadium market. Mr. Francesco D’Alessio is Head of Sales, Americas with Largo USA and is tasked with expanding sales in North and South America.

 

The vanadium sales cycle commences in Q4 of the year preceding coincident with the main industry conferences in Europe and the United States. The Company intends to commit the majority of its anticipated annual vanadium production to annual sales contracts with remaining vanadium production being committed to spot sales. The Company has commitments for close to 85% of its 2021 vanadium production.

 

Maracás Menchen Mine

 

The terms of reference for the Maracás Menchen Mine EIA/RIMA included a social impact, alternatives, and archaeological assessment, in addition to the basic physical and biological environmental impact assessment. Generally, the following licences are issued by CEPRAM in order to bring a mine into production in the State of Bahia:

 

·                  localization license (“LL”)

 

·                  installation license (“LI”)

 

·                  preliminary operating license (“LPO”)

 

·                  operating license (“LO”)

 

Issuance of the LL allows the rest of the licensing process to proceed and the EIA and RIMA are completed during this process. The LL involves the participation of the public and any non-government organization who wish to participate through public meetings. For the Maracás Menchen Mine, the Instituto do Meio Ambiente (“IMA”), the Bahia state environmental agency, hosted these meetings in February 2009 in Maracás and Porto Alegre, which are two towns located in the vicinity of the project site. Following this, IMA submitted the project to CEPRAM who at their April 2009 monthly

 

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meeting endorsed IMA’s recommendation that the LL be granted. The LL is a very critical step in the environmental permitting process and concludes the active participation of the public.

 

The LI involves an approval process involving only Largo and the government agencies noted above. The process includes the submission of more detailed information regarding the project and a detailed description of the proposed environmental management system that was outlined in the LL documentation previously submitted.

 

The LO is granted during the final stages of commissioning and involves a site inspection by IMA, with the likely participation of CEPRAM, to confirm that the project has been constructed as planned and in accordance with the LI. For the Maracás Menchen Mine, Largo received its LL and LI, respectively, on May 13, 2009 and October 20, 2011. In May of 2014, Largo was granted its LPO for the Maracás Menchen Mine. The LPO is issued following completion of commissioning and prior to issuance of the LO for the project. The Company received the LO for the Maracás Menchen Mine in November 2014 which indicates that the plant was built, and was operating, according to its design specifications and environmental guidelines. The LO is valid for 2 years at which time it may be renewed for extension within 6 months of the LO’s expiry date for an additional 2-5 years. The LO was last renewed in October 2018.

 

Employees

 

The Company and its material subsidiary have approximately 436 persons on staff, working full time as either employees or on a consulting basis, and have also retained a service provider in Brazil who deploys approximately 638 additional persons. The Company also retains geologists, engineers, and other consultants on a contract basis as required. The Company has not experienced, and does not expect to experience, significant difficulty in attracting and retaining qualified personnel. However, no assurance can be given that a sufficient number of qualified employees can be retained by the Company when necessary. See “Risk Factors — Risks Related to the Business and Operations”.

 

Foreign Operations

 

At present, the Company’s operating facilities are all located in Brazil and its sales and trading functions are located in Ireland and the United States. Consequently, the Company is at the date of this AIF dependent on its foreign operations. See “Risk Factors — Risks Related to Brazil”.

 

RISK FACTORS

 

Investing in the Company involves risks that should be carefully considered. The operations of the Company are speculative due to the high-risk nature of its business. Investors should be aware that there are various risks, including those discussed below, that could have a material adverse effect on, among other things, the development of the Maracás Menchen Mine, and the operating results, earnings, business and condition (financial or otherwise) of the Company. See “Cautionary Note Regarding Forward-Looking Information” at the beginning of this AIF.

 

Risks Related to the Business and Operations

 

Our business is highly dependent upon the price of V2O5.

 

Our financial performance is highly dependent on the market price of V2O5, which accounted for 100% of our gross revenue in 2020. Mineral prices, including prices for V2O5, fluctuate widely and are affected by numerous factors beyond the control of the Company. The level of global economic activity, interest rates, speculative activities, supply and demand balances and the stability of exchange rates can all cause significant fluctuations in prices. Such external economic factors are in turn influenced by changes in international investment patterns, monetary systems, and political developments. The price of mineral commodities, including V2O5, has fluctuated widely in recent years, and future price declines could cause commercial production to be commercially unattractive, thereby having a material adverse effect on the Company’s business, financial condition and result of operations.

 

The London Metal Bulletin price for V2O5 was trading in the range of $5.30 and $5.50 per pound V2O5 on December 31, 2020, compared to US$4.80 and US$5.85 per pound V2O5 on December 31, 2019, and US$15.00 to US$16.00 per pound V2O5 on

 

23

 

December 28, 2018. Factors that are generally understood to contribute to variations in the price of V2O5 include changes in global steel production levels, changes in the specific V2O5 consumption rate in the steel industry, production availability and inventories. Future volatility in V2O5 price will have a material effect on the Company’s revenues, profitability and reserves.

 

The average price of V2O5 decreased in 2020 from a high of $6.14 per pound V2O5 in the second quarter of the year to a low of $5.29 per pound V2O5 in the fourth quarter of 2020. This decrease is due in part to increased supply of V2O5 following the price peaks of 2019 and a reduction in demand in part by global battery consumption and production. Since the end of 2019, price recovery in 2020 has been tempered by a global economic slowdown from the COVID-19 pandemic and, as of March 12th, 2021, the Fastmarkets Metal Bulletin price in Europe ranged from $8.00 to $8.65 per pound of V2O5.

 

Our capital and operating cost estimates may prove inaccurate and, consequently, lead to unanticipated costs or capital expenditures, which could affect our financial condition and results of operations.

 

Capital and operating cost estimates made by our management are estimates which are in turn based on, among other things, our interpretation of geological data, feasibility studies, anticipated climatic conditions and other information. Any or all of these can affect the accuracy of the estimates including: (i) unanticipated changes in grade and tonnage to be mined and processed; (ii) incorrect data on which engineering assumptions are made; (iii) unanticipated transportation costs; (iv) accuracy of equipment and construction cost estimates; (v) difficulty or failure to meet scheduled construction completion dates, facility or equipment commissioning dates, or metal production dates; (vi) poor or unsatisfactory construction quality resulting in failure to meet completion, commissioning or production dates; (vii) increased expenditures required as a failure to meet completion, commissioning or production dates; (viii) capital overruns related to the completion of any construction phase including capital overruns associated with demobilization of construction workers and contractors; (ix) labour negotiations; (x) unanticipated costs relating to the commencement of operations, ramp up and production sustainment; (xi) changes in government regulation (including regulations regarding prices, cost of consumables, royalties, duties, taxes, permitting and restrictions on production quotas or exportation of our products); (xii) change in commodity input costs and quantities; and (xiii) communication issues including familiarity with language, between domestic and foreign employees, contractors, advisors, agents and government officials. If any of our estimates of capital and operating costs or capital expenditures are materially inaccurate, it could have a material adverse effect on our business, results of operations and financial condition.

 

We may not be able to generate enough revenue to achieve sustained profitability, in particular as we are a single asset operation.

 

As of the date of this AIF, the Company has recorded revenues from only one project, the Maracás Menchen Mine. There can be no assurance that losses (including significant losses) will not occur in the near future or that the Company will be profitable in the future. The Company’s operating expenses and capital expenditures may increase in subsequent years for consultants, personnel and equipment associated with advancing exploration, development and commercial production of other properties by the Company. The Company’s costs of sales may also increase as the Company transitions from the Offtake Agreement to developing its own sales and trading capabilities. The development of other properties by the Company will require the commitment of substantial resources to conduct time-consuming development. There can be no assurance that the Company will generate revenues from other projects or achieve profitability.

 

Our 2020 audited annual consolidated financial statements were prepared on a going concern basis, which assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. As of December 31, 2020, the Company had an accumulated deficit of approximately $71.9 million, and had a net working capital surplus of $93.0 million. Total amounts due within 12 months on the Company’s long term debt are 24.8 million. Although the Company has been successful in the past in obtaining financing there is no assurance that it will be able to obtain adequate financing in the future or that such financing will be on terms advantageous to the Company.

 

24

 

Substantially all of our revenues are derived from the sales of vanadium products produced at the Maracás Menchen Mine. This lack of diversification of our business could adversely affect our financial condition, results of operations and cash flows.

 

We rely on the V2O5 production from the Maracás Menchen Mine for all of our revenues. For the year ended December 31, 2020, revenues from the sales of vanadium products accounted for 100% of our total revenues. As noted above, demand for V2O5 mainly depends on global demand for steel. As one of the few producers of high purity V2O5 globally, demand from the aerospace, chemical and energy storage industries are also essential to Largo and enables it to achieve premiums over the standard market prices for steel applications. At times, the pricing and availability of steel can be volatile due to numerous factors beyond our control. Since we are heavily dependent on the steelmaking industry, adverse economic conditions in that industry, even in the presence of otherwise favorable economic conditions in the broader vanadium mining industry, could have a significantly greater impact on our results of operations and financial condition than if our business were more diversified. In addition, our lack of diversification may make us more susceptible to such adverse economic conditions than our competitors with more diversified operations and/or asset portfolios.

 

Effective April 30, 2020, the Company’s Offtake Agreement with Glencore International AG terminated. We may not be able to generate sufficient revenue from sales of vanadium products.

 

The Offtake Agreement expired in accordance with its terms and the notice of non-renewal given by the Company thereunder, effective April 30, 2020. During the existence of the Offtake Agreement the Company had relied on the Offtake Agreement for 100% of the sales of vanadium products produced in our Maracás Menchen Mine. See also “General Development of the Business — Three Year History — Operations”, and “Description of the Business — Marketing and Distribution”.

 

The Offtake Agreement provided certainty of sales as the agreement required our offtake partner to purchase 100% of the V2O5 produced in our Maracás Menchen Mine. There can be no assurance that we will be able to sell 100% of our production capacity to generate profitability moving forward.

 

Our ability to successfully develop and implement our sales and trading business is inherently subject to a number of risks and uncertainties and will require the commitment of substantial resources of both management and capital. In particular, material risks and uncertainties in connection with these developments include, without limitation:

 

·                  the difficulties and costs associated with building out a channel of sales networks;

·                  the ability to attract, train, and retain qualified sales personnel;

·                  the ability to develop, advance and maintain relationships with end customers and with distribution partners;

·                  the ability to manage inventory, and fulfill orders;

·                  third party transportation risks;

·                  increased exposure to global currency fluctuations;

·                  the impact of customs duties and tariffs;

·                  end-customer demand may not meet expectations; and

·                  the Company may produce more vanadium products than it is capable of selling.

 

See also “Risk Factors — Risks Related to the Business and Operations — Our business is highly dependent upon the price of V2O5”.

 

Global events outside of the Company’s control, such as the COVID-19 pandemic, may adversely affect demand for our products, our ability to maintain operations and our financial results.

 

The international outbreak of the respiratory illness COVID-19 (also referred to as the ‘coronavirus’) and efforts to contain it may have a significant effect on both Chinese and global commodity demand and prices, and may also impact third parties’ ability to meet their obligations to the Company and the Company’s ability to meet its obligations to its customers.

 

COVID-19, or any other contagious diseases or public health threats in the human population, could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic

 

25

 

downturn that could affect demand for the Company’s products and negatively impact our operating results and financial performance.

 

Global pandemics and other public health threats (like COVID-19), or a fear thereof, could adversely impact our production operations, sales efforts, expansion projects, lead to labour shortages, and severely impact supply chain logistics including travel and shipping disruptions and shutdowns (including as a result of government regulation and prevention measures) affecting delivery of the raw materials we need to operate and delivery of our products to customers, among others. It is unknown whether and how the Company may be affected if such an occurrence persists for an extended period of time but we anticipate that it would have a material adverse effect on our business, operating results and financial performance. In addition, the Company may also be required to incur additional expenses and/or delays relating to such events which could have a further negative impact on our business, operating results and financial performance.

 

We may not be able to build, finance and operate a VRFB business, which could adversely affect our sales, profitability, cash flows and financial performance.

 

The Company intends to use some of its resources to develop a VRFB business, which will result in increased costs and the attention of management diverted from our core mining business. The Company may not be able to build, finance and operate a VRFB business, protect and develop VRFB technology, maintain its VRFB intellectual property assets, market and sell our VCHARGE± battery system on specification or at a competitive price, or secure the required production resources to build our VCHARGE± battery system. There is no certainty that the actual market for VFRB technology will align with the Company’s expectations.

 

We may also be required to incur additional expenses and/or delays relating to the VRFB business beyond management’s current forecasts. These increased costs, in addition to the possibility that the VRFB business may not prove to be profitable, could have a negative impact on our business, operating results and financial performance.

 

Failure to achieve production targets or cost estimates could adversely affect our sales, profitability, cash flows and financial performance.

 

The Company prepares future operating and capital cost estimates with respect to existing operations. Actual production and costs may vary from the estimates for a variety of reasons such as estimates of grade, tonnage, dilution and metallurgical and other characteristics of the ore varying from the actual ore mined, revisions to mine plans, risks and hazards associated with mining, adverse weather conditions, unexpected labour shortages or strikes, equipment failures and other interruptions in production capabilities. Operating costs may also be affected by increased mining costs, variations in predicted grades of the deposits, increases in level of ore impurities, labour costs, raw material costs, inflation and fluctuations in currency exchange rates. Failure to achieve production targets or cost estimates could have a material adverse impact on the Company’s sales, profitability, cash flow and overall financial performance.

 

Our business requires substantial capital expenditures to achieve its operational and strategic objectives and is subject to financing risks.

 

The mining business is capital intensive and the development and exploitation of vanadium reserves and the acquisition of machinery and equipment require substantial capital expenditure. We have a number of plans for our existing operations, which could involve significant capital expenditure. In particular, we must continue to invest significantly to maintain or to increase the amount of reserves that we exploit and the amount of V2O5 that we produce. Some of our development projects and prospects may require greater investment than currently planned. In addition, our ability to continue our exploration, exploitation, development and operational activities will depend ultimately on our ability to generate cash flows and secure financing as required. There can be no assurance that we will be able to maintain our production levels and generate sufficient cash flow, or that we will have access to sufficient investments, loans or other financing alternatives, to continue our development and processing activities at or above present levels and failure to do so, could result in delays.

 

26

 

Our controlling shareholders have the ability to determine the outcome of corporate actions or decisions, and its interests may conflict with those of our other shareholders.

 

The ARC Funds are capable of controlling the direction of the Company through the right to nominate three of the six persons for election as directors of the Company, who will be subject to the vote of the shareholders. Unilateral control over a majority of the persons nominated for election as directors of the Company will enable the ARC Funds to determine the persons responsible for managing the direction of the Company. The ARC Funds directly own approximately 43.37% of our outstanding Common Shares as of the date of this AIF and therefore have the ability to determine the outcome of most corporate actions or decisions requiring the approval of our shareholders. The interests of our controlling shareholder may conflict with those of our other shareholders.

 

We are subject to comprehensive environmental regulations. Compliance with environmental regulations and procurement of the necessary environmental permits to operate may result in significant costs, and failure to comply with environmental regulations may result in significant environmental liabilities.

 

Our operation in Brazil is subject to stringent Brazilian federal, state and local environmental laws and regulations concerning human health, the handling and disposal of solid and hazardous wastes and discharges of pollutants into the air and water.

 

Any failure to comply with such laws and regulations may subject the Company to penalties, including warnings, payment of fines, embargo and suspension of activities, which may cause a significant adverse effect on the Company. We have incurred and we will continue to incur capital expenses in order to continue to comply with these laws and regulations. In addition, such laws and regulations are subject to change and can become more stringent, making our compliance efforts more costly.

 

In addition, Brazilian companies whose activities are deemed as potentially polluting activity may be subject to an environmental licensing process. Such environmental licensing process has three sequential stages:

 

·                  Preliminary License (“LP”): The LP is granted in the preliminary planning phase of a project or activity and it approves the location and the environmental impact assessment of a project, attesting to its environmental feasibility and determining the basic requirements and conditions to be observed in the subsequent permitting stages;

 

·                  Installation License (“LI”): The LI is granted so that a project or activity can be installed or constructed, in accordance with the specifications presented and subject to further conditions so as to mitigate and compensate any negative impacts;

 

·                  Operational License (“LO”): The LO is granted for a project or activity to commence the operational phase subject to further conditions.

 

In the State of Bahia, where our Maracás Menchen Mine operates, the environmental licensing process is under the responsibility of INEMA.

 

Such process takes into consideration the nature and size of a project as well as the impacts and the characteristics of the ecosystem affected by the installation and operation of a project, based on the information provided by the Environmental Impact Assessment and Report (“EIA/RIMA”). The EIA/RIMA is a comprehensive study that includes analysis of the environmental, social and economic impact of the project.

 

Currently, the Maracás Menchen mine is fully licensed. The current Operation License (LO) - which is the main license for the company’s operation, was initially valid until October 6th, 2020. The renewal process commenced in May 2020, however, due to the COVID-19 pandemic, INEMA has been unable to visit the Maracás Menchen Mine to complete its audit.  As a result, the LO has been automatically extended until INEMA can complete their review and inspection process. A failure to obtain a future extension or renewal of the existing license or to obtain any necessary license, the permission or approval required for the development of our activities, may have a material adverse effect on our business, operation results and financial condition.

 

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Our project in Canada is also subject to extensive Canadian laws and regulations relating to pollution, protection of the environment and the generation, storage, handling, transportation, treatment, disposal and remediation of hazardous substances and waste materials. Costs and capital expenditures relating to environmental, health or safety matters are subject to evolving regulatory requirements and depend on the promulgation and enforcement of specific standards which impose applicable requirements. Moreover, changes in environmental regulations could inhibit or interrupt our operations, or require modifications to our facilities. Accordingly, environmental, health or safety regulatory matters may result in significant unanticipated costs or liabilities.

 

We are subject to risks posed by litigation, arbitration and other disputes under binding agreements with various third parties.

 

The Company has entered into legally binding agreements with various third parties under supply contracts and consulting agreements. The interpretation of the rights and obligations that arise from such agreements may be open to differing interpretations and the Company may disagree with the position taken by other parties to these agreements. This could result in a dispute which, if unresolved, might trigger a litigation or arbitration process, causing the Company to incur possible legal or similar costs in the future. Given the speculative and unpredictable nature of litigation or the arbitration process, final outcomes in such disputes may have material adverse effects on the Company.

 

The mining business is subject to a number of risks and hazards, not all of which are fully covered by insurance.

 

The mining business is subject to risks and hazards, many of which are outside our control. Hazards associated with mining operations include environmental hazards, industrial accidents, encountering unusual or unexpected geological deposits, cave ins or landslides, flooding, earthquakes, underground fires and explosions, including those caused by flammable gas, gas and coal outbursts, falling rocks, tunnel collapses, lack of oxygen, air pollution, discharges of tailings, hazardous substances and materials, gases and toxic chemicals, sinkhole formations and ground subsidence, other accidents and conditions resulting from underground mining, such as drilling, blasting, removing and processing material. These occurrences could result in damage to, or destruction of, mineral properties or production facilities, human exposure to pollution, personal injury or death, environmental damage, reduced production and delays in mining, asset write downs, reputational damage, monetary losses and possible legal liability.

 

Although we maintain insurance in an amount we consider adequate, liabilities might exceed policy limits, which could cause us to incur significant costs that could materially and adversely affect our results of operations. Insurance that fully covers many environmental risks (including potential liability for pollution or other hazards as a result of disposal of waste products occurring from exploration and production) is not generally available to us or to other companies in the mining industry, particularly in Brazil following the Samarco dam collapse in 2015. The realization of any significant liabilities in connection with our mining activities as described above could have a material adverse effect on our results of operations or financial condition.

 

Our business is exposed to the cyclicality of global economic activity and requires significant investments of capital.

 

As a mining company, we are a supplier of industrial raw materials. Industrial production tends to be the most cyclical and volatile component of global economic activity, which affects demand for minerals and metals. At the same time, investment in mining requires a substantial amount of funds in order to replenish reserves, expand and maintain production capacity, build infrastructure, preserve the environment and minimize social impacts. Sensitivity to industrial production, together with the need for significant long term capital investments, are important sources of risk for our financial performance and growth prospects.

 

Developments in China could have a negative impact on our revenues, cash flows and results of operations.

 

The Chinese market is a significant source of global demand for commodities and has been the main driver of global demand for V2O5 over the last few years. In Q3 2019, Chinese demand represented approximately 58% of global demand for V2O5. Therefore, any contraction of China’s economic growth that is not offset by reduced supply or increased demand from other regions, could result in lower demand for our products, leading to lower prices and lower revenues, cash flow and results of operations. Poor performance in the Chinese real estate sector, a significant consumer of steel in China,

 

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would also negatively impact our results. Conversely, China was also responsible for approximately 63% of global V2O5 production in 2019. Favorable economic conditions could increase supply beyond demand and depress pricing, which would also negatively impact our results.

 

Our business may be adversely affected by declines in demand for and prices of the products our customers produce.

 

Demand for V2O5 depends on global demand for steel. Vanadium is used in the steel industry in the production of HSLA steels, high alloy steels, high speed and tool steels, and engineering steels. Demand for steel depends heavily on global economic conditions, but it also depends on a variety of regional and sectoral factors. The prices of different steels and the performance of the global steel industry are highly cyclical and volatile, and these business cycles in the steel industry affect demand and prices for our products.

 

We may not be able to obtain additional financing on acceptable terms, or at all.

 

Future exploration, development, mining, and processing of minerals from our properties could require substantial additional financing. No assurances can be given that we will be able to raise the additional funding that may be required for such activities, should such funding not be fully generated from operations. To meet such funding requirements, we may be required to undertake additional equity financing, which would be dilutive to shareholders. Debt financing, if available, may involve certain restrictions on operating activities or other financings. There is no assurance that such equity or debt financing will be available to us or that they would be obtained on terms favorable to us, if at all, which may adversely affect our business and financial position. Failure to obtain sufficient financing may result in delaying or indefinite postponement of exploration, development or production on any or all of our properties, or even a loss of property interests.

 

Our industry is highly competitive, and increased competition could adversely affect our margins and market share.

 

The global mining industry is highly competitive. Our existing and potential competitors include some of the world’s largest mining companies and the Company competes with many other mining companies that have substantially greater resources than the Company. We currently face, or may face in the future, competition from other producers of V2O5 globally. Some of these companies may be able to produce at a lower cost than we can. For example, some of our domestic and international competitors may benefit from tax breaks and may be able to better compete against us. In addition, some of our competitors are larger than us and may have greater financial and technical resources, which may enable them to invest significant capital into their businesses, including expenditures for research and development. Such competition may result in the Company being unable to acquire desired properties, recruit or retain qualified employees or acquire the capital necessary to fund its operations and develop its properties. If a current or future competitor develops proprietary technology that enables it to produce at a significantly lower cost, our technology could be rendered uneconomical or obsolete. Increased competition could compel us to reduce the prices of our products, which could result in reduced margins and loss of market share and have a material adverse effect on us.

 

We also face competition from other processing, trading and industrial companies. Competition principally involves sales, supply and labour prices, contractual terms and conditions, attracting and retaining qualified personnel and securing the services and supplies we need for our operations. For example, lower cost producers of V2O5 could be better positioned to manage future volatility through commodity price cycles. In addition, mines have limited lives and, as a result, we must periodically seek to replace and expand our reserves by acquiring new properties and by developing projects. Significant competition exists to acquire mining concessions, land and related assets with potential mineralization. Some other mining companies may have greater financial resources than us, and we may be unable to acquire attractive new mining properties on terms that we consider acceptable. As a result, our revenues from the sales of vanadium products may decline over time, thereby materially and adversely affecting our results of operations or financial condition.

 

Potential changes to international trade regulations and agreements, as well as other political and economic arrangements (including direct or indirect subsidies) may benefit V2O5 producers or traders operating in countries other than where our mining operations are currently located or adversely affect the prices we pay for the supplies we need and our export costs when we engage in international transactions. We cannot assure you that we will be able to compete on the basis of price or other factors with companies that in the future may benefit from favorable regulations, trading or

 

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other arrangements or that we will be able to maintain the cost of the supplies we require or our export costs. The Company’s inability to compete with other mining companies for these resources would have a material adverse effect on the Company’s results of operation and business.

 

We are dependent on third parties for development, construction and operations.

 

The Company has relied upon external consultants, engineers and others and intends to rely on these parties for, among other things, the development, construction and operating expertise. Substantial expenditures are required to construct mines, to establish Mineral Reserves through drilling, to carry out environmental and social impact assessments, to develop metallurgical processes to extract the metal from the ore and, in the case of new properties, to develop the exploration and plant infrastructure at any particular site. In addition, the Company relies on a service provider who deploys approximately 638 contractors for our mining, administration, maintenance and other operations. If such parties’ work is deficient or negligent or is not completed in a timely manner, it could have a material adverse effect on the Company.

 

Interruptions of energy supply or increases in energy costs and other production costs may materially and adversely affect our results of operations.

 

We obtain the necessary electric power for the operation of our equipment and facilities from third parties through electricity supply contracts. In the event of any interruption or failure of our sources of electricity or in transmission lines or in any part of the grid, we cannot assure you that we will have access to other energy sources at the same prices and conditions, which could materially and adversely affect our results of operations and have a material adverse effect on our business, financial condition and result of operations.

 

The availability of energy resources may be subject to change or curtailment, due to, among other things, new laws or regulations, imposition of new taxes or tariffs, supply interruptions, equipment damage, worldwide price levels and market conditions. Disruptions in energy supply could have a material adverse effect on our financial condition and results of operations.

 

Our operations depend on rail, port, marine, shipping or other transportation services provided by third parties.

 

Operation of our facilities, existing and future, will depend in part on the flow of materials, supplies, equipment, services and products. Due to the geographic location of the Company’s operations, existing and future, it remains and will remain dependent on the provision by third parties of rail, port, marine, shipping or other transportation services. Potential issues including contractual disputes, demurrage charges, port or depot capacity handling issues, availability of vessels, rail cars or other modes of cargo transport, weather problems, force majeure and labour disruptions could have a material adverse effect on the Company’s ability to transport various materials necessary for the operation of its facilities in accordance with schedules or contractual requirements. This might result in a material adverse effect on the Company’s business, results of operations and financial performance.

 

Our concessions may be terminated or not renewed by governmental authorities.

 

Under the laws of the jurisdictions where our operations, development projects and prospects are located, Mineral Resources belong to the state and government concessions are required to explore for and exploit Mineral Reserves. The concessions we hold for our operations may be terminated under certain circumstances, including where minimum investment or production levels are not achieved (or a corresponding penalty is not paid), if certain fees are not paid or if environmental and safety standards are not met. Termination of any one or more of our mining or other concessions could have a material adverse effect on our financial condition or results of operations.

 

There are risks inherent with obtaining and maintaining title to properties.

 

The acquisition and maintenance of titles to resource properties is a very detailed and time-consuming process. The Company holds its interests in certain of its properties through mining claims. Title to, and the area of, the mining claims may be disputed. There is no guarantee that such title will not be challenged or impaired. There may be challenges to the

 

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title of the properties in which the Company may have an interest which, if successful, could result in the loss or reduction of the Company’s interest in those properties.

 

Although the nature and extent of the interests of the Company in the properties in which it holds an interest has been reviewed by or on behalf of the Company, and title opinions have been obtained by the Company with regard to certain of such properties, there may still be undetected title defects affecting such properties. Title insurance generally is not available in Canada or Brazil, and the ability of the Company to ensure that it has obtained secure claim to individual mineral properties or mining concessions may be constrained.

 

The properties in which the Company holds an interest may be subject to prior unregistered liens, agreements, transfers or claims, and title may be affected by, among other things, the structure through which the Company maintains its interest in its properties and undetected defects which could have a material adverse impact on the Company’s operations. In addition, the Company may be unable to, effectively (if at all), conduct business at or operate on its properties as permitted or to enforce its rights with respect to those properties.

 

No assurances can be given that title defects to the properties in which the Company has an interest do not exist. The properties may be subject to prior unregistered agreements, interests or aboriginal land claims and title may be affected by undetected defects. If title defects do exist, it is possible that the Company may lose all or a portion of its right, title, estate and interest in and to the properties to which the title defect relates. There is no guarantee that title to the properties will not be challenged or impugned.

 

The Company does not maintain insurance against title. Title on mineral properties and mining rights involves certain inherent risks due to the difficulties of determining the validity of certain claims as well as the potential for problems arising from the frequently ambiguous conveyance history of many mining properties. The Company has investigated title to its mineral claims; however, this should not be construed as a guarantee of title. The Company cannot give any assurance that title to any of its properties will not be challenged or impugned and cannot guarantee that the Company will have or acquire valid title to these mining properties. For example, title to existing properties or future prospective properties may be lost due to an omission in the claim of title, prior activities of the property vendors or changes in Brazilian mining laws or the application thereof which affects the Company’s title or the Company’s rights and interests in its properties. The Company has obtained title reports from Canadian and Brazilian legal counsel with respect to its interest, respectively, in its Canadian and Brazilian properties, but this should not be construed as a guarantee of title or the Company’s rights to these claims. Other parties may dispute the title of the Company or the joint venture to any of its mineral properties and any of such properties may be subject to prior unregistered agreements or transfers or aboriginal land claims and title may be affected by undetected encumbrances or defects or governmental actions.

 

There are risks inherent with our corporate structure.

 

Vanádio, the material Brazilian subsidiary of the Company which holds a 100% interest in the Company’s Maracás Menchen Mine, is a limited liability company, and as such does not require a Board and is controlled by its shareholders. The management of the Company has control over Vanádio by virtue of owning 99.94% of the shares of Vanádio. Therefore, the management of the Company can effectively (i) appoint and dismiss at any time any and all of the officers of Vanádio, (ii) instruct the officers of Vanádio to pursue the Company’s business activities, (iii) has legal rights as a shareholder to require the officers of Vanádio to comply with their fiduciary obligations, and (iv) can also enforce its rights by way of the shareholder remedies available to it. As a result, the management of the Company can effectively align the Issuer’s business objectives and effect the implementation of same at the level of Vanádio.

 

The Company, as the holder of a 99.94% interest in Vanádio, can remove and appoint officers by way of simple communication that such officer is being removed from his/her position and the subsequent filing of same with the Board of Trade. The Board, through its corporate governance practices and, in particular, the activities of its board committees, regularly receives management and technical updates and progress reports in connection with Vanádio. In so doing, the Board maintains effective oversight of the operations and project development activities of Vanádio.

 

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The Board has the ability to exert effective control over Vanádio as discussed herein. Accordingly, the Board will be able to cause Vanádio to transfer funds and accomplish the various operating aspects of the business when Vanádio is generating revenues.

 

Certain of the directors and officers of the Company have extensive experience doing business in both Canada and Brazil. In particular, Paulo Misk, Alberto Arias and Daniel Tellechea are the directors of the Company that have experience in conducting business in Brazil and Les Ford (former Senior Vice President and Technical Director of Brazilian Operations and currently consultant to the Company) is an individual with experience in conducting business in Brazil. Moreover, Alberto Arias is fluent in Portuguese.

 

Knowledge of the local business, culture and practices is imparted by these individuals to other directors and officers of the Company, furthermore, several of the non-resident directors and officers visit Brazil on a regular basis in order to ensure effective control and management of the operations and as a result come into contact with other employees, personnel, government officials, business persons and customers who are locals in Brazil. This enables them to enhance their knowledge on these fronts. Paulo Misk, formerly the Chief Operating Officer of the Company and now Chief Executive Officer of the Company, is resident in Brazil and travels to the mine site regularly.

 

All directors and executive officers of the Company have some familiarity with the legal and regulatory requirements of Brazil. Brazilian legal counsel (both internal at Vanádio and external) and Brazilian management ensure that the Company’s management is kept aware of relevant material legal developments in Brazil as they pertain to and affect the Company’s business and operations. Any material developments are then discussed with the directors at the board level.

 

Other than as discussed herein, the Company does not currently have a formal communication plan or policy in place and has not, to date, experienced any communication-related issues due to the fact that the management team located in Brazil is proficient in the English language.

 

The Company will, from time to time, re-evaluate whether a formal communication policy is necessary. The Company hires and engages local experts and professionals (i.e. legal and tax consultants) to advise the Company with respect to current and new regulations in respect of banking, financial and tax matters. The Company utilizes large, established and well recognized financial institutions in both Canada and Brazil. Directors visit the Company’s operations in Brazil several times per year and have regular board meetings by telephone which include the Company’s Chief Executive Officer and Chief Financial Officer and other relevant Vanádio officers and managers. The Company arranges for site visits to its projects as deemed appropriate. The Company hosted one site visit for members of the Board of Directors in 2020, one in 2019 and two in 2018. The operations committee of the Board of Directors held two site visits in 2019.

 

The directors and officers also work closely with Brazilian counsel and Brazilian employees of the Company and its subsidiaries to understand and subsequently adjust firm strategies and practices relating to changes in Brazilian laws and regulatory regimes.

 

Each member of the management team located in Brazil speaks fluent Portuguese and all are proficient in English. Paulo Misk, Chief Executive Officer, and Luciano Chaves, Vice President of Finance and Administration in Brazil, Álvaro Resende, Production Director are each fluent in Portuguese and English.

 

Alberto Arias is a director and non-executive Chairman of the Company who is fluent in English and Portuguese. The primary language used in management and board meetings is English. The management team located in Brazil dealing with the operating staff and outside consultants communicate in Portuguese with such individuals as necessary. Both Vanádio and the Company have translators on staff to assist with all communication requirements, as needed.

 

Material documents relating to the Company that are provided to the board are in English. When original material documents are prepared in Portuguese, these are typically translated by the Company’s Brazilian legal counsel, who are fluent in English and Portuguese. When required, the Company will sometimes use third party translation services.

 

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We depend on key personnel and any inability to recruit and retain key personnel may adversely affect our business.

 

Recruiting and retaining qualified personnel in the future is critical to the Company’s success. The number of persons skilled in the exploration and development of mining properties is limited and competition for this workforce is intense. Any expansion of the Company’s properties may be significantly delayed or otherwise adversely affected if the Company cannot recruit and retain qualified personnel as and when required.

 

Our success also depends, in large measure, on the skills, experience and efforts of our senior management team and other key personnel. The loss of the services of one or more members of our senior management or of employees with critical skills may have a negative effect on our business, financial condition and results of operations. We may experience difficulty in attracting and retaining the skilled employees we may require to replace lost employees or grow our business. If we are unable to attract or retain highly skilled, talented and committed senior managers or other key employees, it may adversely affect our ability to fully implement our business objectives.

 

Our directors and officers may from time to time have a conflict of interest.

 

Certain of the Company’s directors and officers serve or may agree to serve as directors or officers of other companies and, to the extent that such other companies may participate in ventures in which the Company may participate, the directors of the Company may have a conflict of interest in negotiating and concluding terms respecting such participation.

 

We are subject to anti-corruption, anti-bribery, anti-money laundering, sanctions and antitrust laws and regulations.

 

We are subject to anti-corruption, anti-bribery, anti-money laundering, sanctions, antitrust and other similar laws and regulations. We are required to comply with the applicable laws and regulations of Brazil and Canada, and we may become subject to such laws and regulations in other jurisdictions. There can be no assurance that our internal policies and procedures will be sufficient to prevent or detect any inappropriate practices, fraud or violations of law by our affiliates, employees, officers, executives, partners, agents, suppliers and service providers, nor that any such persons will not take actions in violation of our policies and procedures. Any violations by us or any of our affiliates, employees, directors, officers, partners, agents, suppliers and service providers of anti-bribery and anti-corruption laws or sanctions regulations could have a material adverse effect on our business, reputation, results of operations and financial condition.

 

Labour disputes may disrupt our operations from time to time.

 

A substantial number of our employees, and some of the employees of our subcontractors, are represented by labour unions and are covered by collective bargaining or other labour agreements, which are subject to periodic negotiation. Strikes and other labour disruptions at any of our operations could adversely affect the operation of facilities and the timing of completion and cost of our capital projects. Moreover, we could be adversely affected by labour disruptions involving unrelated parties that may provide us with goods or services. In May, 2018, production at our Maracás Menchen Mine was suspended for four days due to a national truckers’ strike in Brazil which was settled on May 30, 2018.

 

Our business is subject to environmental, health and safety incidents.

 

Our operations involve the use, handling, storage, discharge and disposal of hazardous substances into the environment and the use of natural resources, and the mining industry is generally subject to significant risks and hazards, including fire, explosion, toxic gas leaks, spilling of polluting substances or other hazardous materials, rockfalls, incidents involving dams, failure of other operational structures and incidents involving mobile equipment, vehicles or machinery. This could occur by accident or by breach of operating and maintenance standards, and could result in a significant environmental and social impacts, damage to or destruction of mineral properties or production facilities, personal injury, illness or death of employees, contractors or community members close to operations, environmental damage, delays in production, monetary losses and possible legal liability. Additionally, in remote localities, our employees may not have access to timely emergency medical care which may affect their health and safety. Notwithstanding our standards, policies and controls, our operations remain subject to incidents or accidents that could adversely affect our business, stakeholders or reputation.

 

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Under Brazilian law, any individual or legal entity (whether public or private) that directly or indirectly causes harm to the quality of the environment may be held liable for the recovery, remediation or compensation of the damages that were generated, without regard to whether there is a direct or indirect connection between their act (or omission) and the damage caused to the environment. There are three types of liabilities that may be applied cumulatively: (i) civil, (ii) administrative and (iii) criminal.

 

Civil liability for environmental damages is strict, requiring that the responsible parties remediate the damage in full or pay compensation when remediation is not possible. Civil liability also applies jointly and severally to those who facilitate, benefit from and contribute to the occurrence of environmental damage. As a result, the party bringing the environmental claim may freely choose whom to sue.

 

There is no limit to the amount that Brazilian courts may award to cover the costs of repairing the damage. If the damage cannot be repaired, Brazilian courts may order the payment of an indemnity. Environmental civil liability is not subject to a statute of limitations under Brazilian law.

 

With respect to criminal liability, Federal Law 9,605/98 provides that the legal entity and its individual representatives whose criminal actions were taken for the benefit of such entity can be held liable for criminal offences against the environment. In the case of the liability of the individual representatives, there needs to be some element of willful misconduct. In the case of the legal entity, a strict liability rationale applies: the legal entity can be charged regardless of the implication of any other individual representatives if it is confirmed that willful misconduct was undertaken for the benefit of the legal entity and by a decision of its representatives. Criminal sanctions applicable to legal entities include fines, the partial or total suspension of activities and embargos, prohibitions on contracting with governmental entities, as well as on obtaining subsidies, grants or donations, for a maximum period of 10 years.

 

Administrative liability arises from any action or omission in violation of the Federal Decree No. 6,514/2008, which sets out the administrative environmental infractions and the corresponding penalties, setting fines amounting to a maximum of R$50 million, as well as suspension of activities. Such liability can be pursued against the legal entity or the individual person that may incur any such infraction.

 

We rely on various operating and financial systems and data which may expose us to cyber security threats.

 

The Company and its operations rely on various operating and financial systems and data. Cybersecurity risk is increasingly difficult to identify and quantify and cannot be fully mitigated because of the rapidly evolving nature of the threats, targets and consequences. A breach of the Company’s information or operational technology systems may result in disruption of business activities, loss of confidential or proprietary data, failure of internal controls over financial reporting, failure to meet obligations and reputational damage. Such a breach may also expose the Company to legal and regulatory action. Policies and procedures are maintained to ensure the security of its information technology systems, and data and system security controls are regularly tested. The Company also relies on third-party service providers for the storage and processing of various data. There can be no assurance, however, that the Company will not suffer a business disruption or loss or corruption of proprietary data, whether inadvertent or otherwise.

 

Enforcement of civil claims against the Company in Canada may be difficult as the majority of our assets are located outside of Canada.

 

The majority of our subsidiaries and the majority of our assets are located outside of Canada. Accordingly, it may be difficult for investors to enforce within Canada any judgments obtained against the Company, including judgments predicated upon the civil liability provisions of applicable Canadian securities laws or otherwise. Consequently, investors may be effectively prevented from pursuing remedies against the Company under Canadian securities laws or otherwise.

 

The Company has subsidiaries incorporated in the United States, Brazil and Ireland. It may not be possible for shareholders to effect service of process outside of Canada against the directors and officers of the Company, and independent qualified persons engaged by the Company, who are not resident in Canada. In the event a judgment is obtained in a Canadian court against one or more of such persons for violations of Canadian securities laws or otherwise, it may not be possible to enforce such judgment against persons not resident in Canada. Additionally, it may be difficult

 

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for an investor, or any other person or entity, to assert Canadian securities law or other claims in original actions instituted in the United States, Brazil or Ireland. Courts in these jurisdictions may refuse to hear a claim based on a violation of Canadian securities laws or otherwise on the grounds that such jurisdiction is not the most appropriate forum to bring such a claim. Even if a foreign court agrees to hear a claim, it may determine that the local law, and not Canadian law, is applicable to the claim. If Canadian law is found to be applicable, the content of applicable Canadian law must be proven as a fact, which can be a time-consuming and costly process. Certain matters of procedure will also be governed by foreign law.

 

Risks Related to Our Industry

 

The vanadium market is small and highly concentrated and therefore susceptible to swings in the availability of supply.

 

Most of the world’s supply of V2O5 is derived from mined ore, either directly as mineral concentrates derived from VTM or from steelmaking slags, where the steel was produced from VTM. A significant majority (approximately 91%) of the world’s V2O5 comes from four source countries: China, South Africa, Russia and Brazil. While Canada, Germany, Japan, and the United States, as well as several other European countries, continue to recover V2O5 from petroleum residues, the market is currently very small and highly concentrated.

 

Any collusion or concerted action between the major producers in China, South Africa and/or Russia could impact the availability of supply which could in turn have a negative impact on the price of V2O5.

 

Demand for V2O5 is highly dependent on demand for steel.

 

The steel industry accounts for approximately 92.5% of global total V2O5 consumption. HSLA carbon steels account for more than half of global V2O5 consumption. HSLA steels are a class of relatively new steel alloys which use small amounts of vanadium, niobium, titanium or some combination of these microalloying elements to impart higher strength and fine grains structure in the steel. Special steels including tool steels, high speed steels and special alloy steels account for close to one third of global V2O5 consumption. Vanadium is also used in the production of titanium alloys for aerospace, industrial and consumer applications. It is used as a catalyst in oxidation reactions and in pollution control systems. Other applications include pigments, corrosion inhibitors and other minor chemical processes.

 

While new markets for V2O5 may arise in the future, for example, a market in energy storage applications, a significant majority of V2O5 is currently being used in connection with the steel industry, in particular HSLA carbon steels and special steels. Any fall in demand and/or production for HSLA carbon steels and special steels could impact industry demand for V2O5 and, in turn, have a negative impact on the price of V2O5.

 

Mineral Resource and Mineral Reserve estimates may be inaccurate. Our actual Mineral Reserves could be lower than such estimates, which could adversely affect our operating results, financial condition, cash flows and the life of our mine.

 

There are numerous uncertainties inherent in estimating Mineral Resources and Mineral Reserves, including many factors beyond the control of the Company. The accuracy of any Mineral Resource or Mineral Reserve estimate is a function of the quantity and quality of available data and of the assumptions made and judgments used in engineering and geological interpretation. These amounts are estimates only and the actual level of mineral recovery from such deposits may be different. Undue reliance should not be placed on estimates of Mineral Resources and Mineral Reserves, since these estimates are subject to numerous uncertainties. Differences between management’s assumptions, including economic assumptions such as metal prices and market conditions, could have a material adverse effect on the Company’s financial position, cash flows, results of operations and the life of our mine.

 

Our reported Mineral Reserves are estimated quantities of V2O5 that we have determined can be economically mined and processed under present and assumed future conditions. There are numerous uncertainties inherent in estimating quantities of reserves and in projecting potential future rates of mineral production, including factors beyond our control. Reserve reporting involves estimating deposits of minerals that cannot be measured in an exact manner, and the accuracy of any reserve estimate is a function of the quality of available data, engineering and geological interpretation and

 

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judgment. As a result, no assurance can be given that the indicated amount of V2O5 will be recovered or that it will be recovered at the rates we anticipate. Reserve estimates and estimates of mine life may require revisions based on actual production experience, projects, updated exploration drilling data and other factors. For example, lower market prices of minerals and metals, reduced recovery rates or increased operating and capital costs due to inflation, exchange rates, changes in regulatory requirements or other factors may render proven and probable reserves uneconomic to exploit and may ultimately result in a reduction of reserves. Such a reduction could affect depreciation and amortization rates and have an adverse effect on our financial performance.

 

We may not be able to replenish our reserves, which could adversely affect our mining prospects.

 

We engage in mineral exploration, which is highly uncertain in nature, involves many risks and frequently is non-productive. Our exploration programs, which involve significant expenditures, may fail to result in the expansion or replacement of reserves depleted by current production. If we do not develop new reserves, we will not be able to sustain our current level of production beyond the remaining lives of our existing mines.

 

We face rising extraction costs or investment requirements over time as reserves deplete.

 

Reserves are gradually depleted in the ordinary course of a given open pit or underground mining operation. As mining progresses, distances to the primary crusher and to waste deposits become longer, pits become steeper, mines may move from being open pit to underground, and underground operations become deeper. In addition, for some types of reserves, mineralization grade decreases and hardness increases at greater depths. As a result, over time, we may experience rising unit extraction costs with respect to our mine, or we may need to make additional investments, including adaptation or construction of processing plants and expansion or construction of tailings dams. Our mine may experience rising extraction costs per unit in the future.

 

Nature of mining operations, mineral exploration and development projects and mining businesses generally involve a high degree of risk.

 

Mining operations generally involve a high degree of risk. The Company’s operations and those of its subsidiaries are subject to the hazards and risks normally encountered in mineral exploration, development and production, including environmental hazards, explosions, unusual or unexpected geological formations or pressures and periodic interruptions in both production and transportation due to inclement or hazardous weather conditions. Such risks could result in damage to, or destruction of, mineral properties or producing facilities, personal injury, environmental damage, delays in mining, monetary losses and possible legal liability.

 

Development projects have no operating history upon which to base estimates of future cash operating costs. For development projects, resource and reserve estimates and estimates of cash operating costs are, to a large extent, based upon the interpretation of geological data obtained from drill holes and other sampling techniques, and feasibility studies, which derive estimates of cash operating costs based upon anticipated tonnage and grades of ore to be mined and processed, ground conditions, the configuration of the ore body, expected recovery rates of minerals from the ore, estimated operating costs, anticipated climatic conditions and other factors. As a result, actual production, cash operating costs and economic returns could differ significantly from those estimated. Indeed, current market conditions are forcing many mining operations to increase capital and operating cost estimates. It is not unusual for new mining operations to experience problems during the start-up phase, and delays in the commencement of production can often occur.

 

Mineral exploration is highly speculative in nature. There is no assurance that exploration efforts will be successful. Even when mineralization is discovered, it may take several years until production is possible, during which time the economic feasibility of production may change. Substantial expenditures are required to establish proven and probable Mineral Reserves through drilling. Because of these uncertainties, no assurance can be given that exploration programs will result in the establishment or expansion of Mineral Resources or Mineral Reserves. There is no certainty that the expenditures made by the Company towards the search and evaluation of mineral deposits will result in discoveries or development of commercial quantities of ore.

 

36

 

Risks Related to Brazil

 

The Brazilian government has historically exercised, and continues to exercise, significant influence over the Brazilian economy. Brazilian political and economic conditions may adversely affect us.

 

In 2020, 100% of our revenue was derived from sales of vanadium products originating from our operations in Brazil. Accordingly, our business, financial condition, results of operations and cash flows depend, to a considerable extent, upon economic and political conditions in Brazil.

 

Political and economic conditions directly affect our business and can result in a material adverse effect on us. Macroeconomic policies imposed by the Brazilian government can have significant impact on Brazilian companies or companies with significant operations in Brazil, including us.

 

The Brazilian economy has been characterized by frequent and occasionally significant intervention by the Brazilian government and unstable economic cycles. The Brazilian government has often changed monetary, taxation, credit and other policies to influence the course of Brazil’s economy. The Brazilian government’s actions to control inflation have at times involved setting wage and price controls, blocking access to bank accounts, imposing exchange controls, capital inflow and outflow controls and limiting imports and exports.

 

We cannot control or predict whether the current Brazilian government will implement changes to existing policies or the impact such changes may have on our operations in Brazil and, consequently, our business. Our business, operating results and financial condition and prospects, as well as the market price of our securities, may be adversely affected by changes in Brazil’s public policies, whether federal, state or local, that affect, without limitation:

 

·                  inflation;

 

·                  fluctuations in exchange rates;

 

·                  exchange controls and restrictions on remittances abroad, such as those imposed in 1989 and early 1990;

 

·                  interest rates and monetary policies;

 

·                  import and export controls;

 

·                  liquidity of domestic capital, credit and financial markets;

 

·                  expansion or contraction of the Brazilian economy, as measured by rates of growth in gross domestic product, or GDP;

 

·                  fiscal policies; and

 

·                  other political, social and economic developments in or affecting Brazil.

 

Government policies and measures to combat inflation, along with public speculation about such policies and measures, have often had adverse effects on the Brazilian economy, contributed to economic uncertainty in Brazil and increased volatility in the Brazilian securities markets. The Brazilian government’s actions to control inflation have often involved price and salary controls, currency devaluations, capital limitations, limits on imports and other actions.

 

Other policies and measures adopted by the Brazilian government, including interest rate adjustments, intervention in the currency markets or actions to adjust or fix the value of the real may adversely affect the Brazilian economy, our business and results of operations.

 

Uncertainty over whether the Brazilian federal government will implement reforms or changes in policy or regulation affecting these or other factors in the future may affect economic performance and contribute to economic uncertainty in Brazil, which may in turn have adverse effects on our operations in Brazil and consequently on the results of our operations. Recent economic and political instability has led to a negative perception of the Brazilian economy and higher volatility in the Brazilian securities markets.

 

37

 

Operation Lava Jato or similar investigations and political instability resulting therefrom may adversely affect our business and results of operations. Additionally, such investigations may result in reputational risks.

 

Brazil’s political environment has historically influenced, and continues to influence, the performance of the country’s economy. Political crises have affected and continue to affect investor confidence and that of the general public, which resulted in economic deceleration and heightened volatility in the securities issued by Brazilian companies or of companies with significant operations in Brazil.

 

Brazilian markets have been experiencing heightened volatility due to the uncertainties derived from the ongoing Lava Jato investigation, which is being conducted by the Office of the Brazilian Federal Prosecutor, and its impact on the Brazilian economy and political environment. Certain members of the Brazilian federal government and of the legislative branch, as well as senior officers of large state-owned companies, are facing allegations of political corruption for officials allegedly accepting bribes by means of kickbacks on contracts granted by the government to several infrastructure, oil and gas, and construction companies, among other sectors. Profits of these kickbacks allegedly financed the political campaigns of political parties of the previous federal government coalition that were unaccounted for or not publicly disclosed, as well as served to personally enrich the recipients of bribery schemes. As a result, a number of senior politicians, including congressmen and officers of major private and state-owned companies in Brazil, resigned or have been arrested, and certain senior elected officials and other public officials are being investigated for allegations of unethical and illegal conduct identified during the Lava Jato investigation. There can be no assurance that any person, directly or indirectly connected to us, such as employees, statutory executive officers, members of the board of directors, suppliers, services providers or sub-contractors, is not or will not be implicated in the Lava Jato operation or similar investigations that may adversely affect our image and reputation.

 

The potential outcome of the investigations related to the Lava Jato operation is uncertain, but they have already had an adverse impact on the image and reputation of the implicated companies, and on the general market perception of the Brazilian economy. We cannot predict whether the allegations will lead to further political and economic instability or whether new allegations against government officials or other companies will arise in the future. In addition, we cannot predict the outcome of any such allegations nor their effect on the Brazilian economy. The development of the cases could adversely affect us. On February 1, 2021, the Lava Jato investigation was dissolved by the Attorney General’s Office of the Republic of Brazil (the “PGR”). The PGR has now made this operation an integrated part of the Special Group to Combat Organized Crime of the Federal Prosecution Service.

 

Changes in tax laws, tax incentives and benefits, or differing interpretations of tax laws, may adversely affect our results of operations.

 

The Brazilian tax authorities have frequently implemented changes to tax regimes that may affect the Company and ultimately the demand of the Company’s customers for the products the Company sells. These measures include changes in prevailing tax rates and enactment of taxes, both temporary and permanent. Most recently, effective June 1, 2018, the Brazilian government reduced the Reintegra tax credit available to exporters from 2% to 0.1% in order to offset tax cuts that it had implemented on diesel fuel in a proposal to end a truck driver’s strike in June 2018. While this reduction does not materially affect the Company, it is demonstrative of the Brazilian Government’s ability to quickly make changes to Brazilian laws.

 

Some of these changes may increase the Company’s tax burden, which may increase the prices the Company charges for the products the Company sells, restrict the Company’s ability to do business in the Company’s existing markets and, therefore, materially adversely affect the Company’s results of operations. There can be no assurance that the Company will be able to maintain the Company’s projected cash flows and results of operations following any increases in Brazilian taxes that apply to us and the Company’s operations.

 

In addition, the Company currently receives certain tax benefits. There can be no assurance that these benefits will be maintained or renewed. Also, given the current Brazilian political and economic environment, there can be no assurance that the tax benefits the Company receives will not be judicially challenged as unconstitutional. If the Company is unable to renew the Company’s tax benefits, such benefits may be modified, limited, suspended, or revoked, which may adversely affect us.

 

38

 

Moreover, certain tax laws may be subject to controversial interpretation by tax authorities. In the event that tax authorities interpret tax laws in a manner that is inconsistent with the Company’s interpretations, the Company may be adversely affected.

 

During the 2018 presidential campaign there were discussions with respect to the revocation of income tax exemptions over payment of dividends, which currently exists in Brazil. Although it is not possible to determine whether the president and the members of Congress will pass legislation to this effect, it is possible that the revocation of such exemption and other reforms in Brazil’s tax system will be discussed and eventually implemented by the government.

 

Our operations are exposed to political, economic, and policy risks relating to operating in Brazil.

 

The Company’s principal properties are located in Brazil. As in any foreign country, mineral exploration and mining activities may be affected to varying degrees by changes in political, social and financial stability, and inflation. Any shifts in political, social or financial stability conditions are beyond the control of the Company and may adversely affect the Company’s business. Brazil’s status as a developing country may make it more difficult for the Company to obtain sufficient financing required for the exploration and development of its properties due to real or perceived increased investment risk.

 

The Company’s operations may also be adversely affected by changes in foreign government policies and legislation and other factors which are not within the control of the Company, including, but not limited to, renegotiation or nullification of existing contracts, claims or licenses, changes in mining policies or the legislation or regulatory requirements affecting mining or the personnel administering them, interruption of activities and other measures taken by the Brazilian government due to the COVID-19 pandemic, currency fluctuations and devaluations, exchange controls, factors (including withholding taxes) affecting foreign subsidiaries’ abilities to remit funds to the Company, economic sanctions, royalty and tax increases and retroactive tax claims, risk of terrorist activities, revolution, border disputes, implementation of tariffs and other trade barriers and protectionist practices, taxation policies, volatility of financial markets and fluctuations in foreign exchange rates, labour disputes and other risks arising out of foreign governmental sovereignty over the areas in which the Company’s operations are conducted. The Company’s operations may also be adversely affected by laws and policies of such foreign jurisdictions affecting foreign trade, taxation and investment. If the Company’s operations are disrupted and/or the economic integrity of its contracts is threatened for unexpected reasons, there may be a corresponding material adverse effect on the Company’s business or operations.

 

In the event of a dispute arising in connection with the Company’s operations in a foreign jurisdiction where the Company conducts its business, the Company may be subject to the exclusive jurisdiction of foreign courts or may not be successful in subjecting foreign persons to the jurisdictions of the courts of Canada or enforcing Canadian judgments in such other jurisdictions. The Company may also be hindered or prevented from enforcing its rights with respect to a governmental instrumentality because of the doctrine of sovereign immunity. Accordingly, the Company’s activities in foreign jurisdictions could be substantially affected by factors beyond the Company’s control, any of which could have a material adverse effect on the Company.

 

The Company may in the future enter into agreements in order to expand its business and activities beyond the jurisdictions in which it currently does so. Such an expansion may present challenges and risks that the Company has not faced in the past, any of which could materially adversely affect the results of operations and/or financial condition of the Company.

 

Changes in rain patterns and other climatic effects may adversely impact the Company’s operations.

 

The effects of changes in rainfall patterns, water shortages and changing storm patterns and intensities have from time to time adversely impacted, and may in the future adversely impact, the cost, production levels and financial performance of the Company’s operations. There is no guarantee that there will be sufficient future rainfall to support the Company’s future demands in relation to its sites and operations, and this has and could adversely affect production or the Company’s ability to develop or expand projects and operations in the future. In addition, there can be no assurance that the Company will be able to obtain alternative water sources on commercially reasonable terms or at all in the event of prolonged drought conditions. Conversely, some of the Company’s sites and operations may in the future be subject,

 

39

 

from time to time, to severe storms and high rainfalls leading to flooding and associated damage, which may result in, delays to, or loss of production and development of some of its sites, projects or operations. Extreme rain and flood conditions may exceed site water storage capacity with the potential for involuntary release by way of overflow from tailings storage facilities, which may cause environmental damage. Environmental damage may result in fines or even in criminal sanctions for violations, in addition to the obligation to redress any environmental damages cause, all of which may negatively affect our results of operations or financial condition.

 

Our delay or failure to complete the Ferrovanadium Conversion Plant could have an adverse effect on the Company’s growth prospects.

 

Successful completion of the Ferrovanadium Conversion Plant is subject to various factors, many of which are not within our control. These factors include the granting of consents and permits from the relevant government authorities, the availability, terms, conditions and timing of acceptable arrangements for transportation, construction and refining, the performance of engineering and construction contractors, mining contractors, suppliers and consultants, as well as the qualification of additional reserves. The lack of availability of acceptable contractual terms, or slower than anticipated performance by any contractor, could delay or prevent the successful completion of the Ferrovanadium Conversion Plant. Further expansion of our project may be compromised in the event of a prolonged decline in the market price of V2O5. There can be no guarantee as to when the Ferrovanadium Conversion Plant will be finalized, whether the resulting operations will achieve anticipated production volumes or whether the costs will be in line with those anticipated. The inability to complete the Ferrovanadium Conversion Plant as planned may negatively impact our operations, financial condition and growth prospects.

 

Inflation and efforts by the Brazilian government to combat inflation may contribute significantly to economic uncertainty in Brazil and could have an adverse effect on us.

 

Brazil has historically experienced periods of high inflation. Inflation, as well as governmental measures put in place to combat inflation, have had a material adverse effect on the Brazilian economy. Inflationary pressures persist, and actions taken in an effort to curb inflation, coupled with public speculation about possible future governmental actions, have in the past contributed to economic uncertainty in Brazil and heightened volatility in the Brazilian securities market. The inflation rate in Brazil, as reflected by the Broad Consumer Price Index (Índice Nacional de Preços ao Consumidor Amplo) published by the Brazilian Institute of Geography and Statistics or IBGE (Instituto Brasileiro de Geografia e Estatística), was 4.52% in 2020, 4.31% in 2019 and 3.75% in 2018.

 

As a result of inflationary pressures and macroeconomic instability, the Brazilian government has historically adopted monetary policies that have resulted in Brazil’s interest rates being historically among the highest in the world. The Central Bank of Brazil sets the base interest rates (Sistema Especial de Liquidação e Custódia) (the “SELIC rate”) generally available to the Brazilian banking system, based on the expansion or contraction of the Brazilian economy, inflation rates and other economic indicators. The SELIC was 2.00% on December 31, 2020, 4.5% on December 31, 2019, and 6.5% on December 31, 2018. As of March 2021 the SELIC rate was 2.00%. Any future increase in interest rates could negatively affect our profitability and results of operations and could increase the costs associated with financing our operations.

 

Inflation and government measures to combat inflation, along with speculation about possible future governmental measures, have had and are expected to continue to have significant negative effects on the Brazilian economy, including heightened volatility in the Brazilian securities market. In addition, measures to control inflation have often and historically included maintaining a tight monetary policy with high interest rates, thereby restricting the availability of credit and limiting economic growth. On the other hand, these policies may be incapable of preventing increases in inflation rates. Furthermore, the absence of such policies may trigger increases in inflation rates and thereby adversely affect economic stability. In the event of an increase in inflation, we may not be able to adjust the prices we charge our customers to offset the effects of inflation on our cost structure, which may adversely affect us.

 

Exchange rate fluctuations in Brazil against the U.S. dollar could adversely affect us.

 

Exchange rate instability may have a significant negative effect on the economies in which we operate and could adversely affect us. For example, the Brazilian currency has been historically volatile and has been devalued frequently

 

40

 

over the past three decades. Since 1999, the Central Bank of Brazil has allowed the real to U.S. dollar exchange rate to float freely, and during this period, the real to U.S. dollar exchange rate has experienced frequent and substantial variations in relation to the U.S. dollar and other foreign currencies. Throughout this period, the Brazilian government has implemented various economic plans and used various exchange rate policies, including sudden devaluations, periodic mini-devaluations (during which the frequency of adjustments has ranged from daily to monthly), exchange controls, dual exchange rate markets and a floating exchange rate system.

 

Although long-term depreciation of the real is generally linked to the rate of inflation in Brazil, depreciation of the real occurring over shorter periods of time has resulted in significant variations in the exchange rate between the real, the U.S. dollar and other currencies. We cannot predict whether the Central Bank of Brazil or the Brazilian government will continue to let the real float freely or intervene in the exchange rate market by returning to a currency band system or otherwise. The real may depreciate or appreciate substantially against the U.S. dollar and other currencies. Furthermore, Brazilian law provides that, whenever there is a serious imbalance in Brazil’s balance of payments or there are substantial reasons to foresee a serious imbalance, temporary restrictions may be imposed on remittances of foreign capital abroad. We cannot assure you that such measures will not be taken by the Brazilian government in the future.

 

The real/U.S. dollar exchange rate reported by the Central Bank was R$3.8748 per $1.00 on December 31, 2018, which reflected a 17% depreciation of the real against the U.S. dollar during 2018. As of December 31, 2019, the exchange rate for the purchase of U.S. dollars as reported by the Central Bank was R$ 4.0307 per $1.00, which reflected a 4% depreciation of the real against the U.S. dollar during 2019. As of December 31, 2020, the exchange rate for the purchase of U.S. dollars as reported by the Central Bank was R$5,1967 per $1.00, which reflected a 28.9% depreciation of the real against the U.S. dollar during 2020.

 

Also, the prices of certain raw materials used in our operations in Brazil are denominated in or linked to the U.S. dollar. When the Brazilian real depreciates against the U.S. dollar, the cost in Brazilian reais of our U.S. dollar-linked raw materials increases, and our operating income in Brazilian reais decreases to the extent that we are unable to pass on these cost increases to our customers.

 

In the course of our business, we may decide to enter into financial derivative transactions in the future to hedge our exposure to foreign currency exchange rate variations. However, we cannot assure you that these instruments will be available to us at favorable terms, if at all, or will fully hedge our exposure.

 

A devaluation of the real against the U.S. dollar might also create inflationary pressures in Brazil and lead to increases in interest rates, which could adversely affect the growth of the Brazilian economy as a whole, and undermine our financial situation and operating results. On the other hand, the appreciation of the real in relation to the U.S. dollar may undermine the economy growth driven by exports in Brazil.

 

Because of the degree of volatility and the uncertainty of the factors that impact the Brazilian real’s exchange rate, it is difficult to predict future exchange rate movements. In addition, the Brazilian government may change its foreign currency policy, and any governmental interference in the exchange rate, or the implementation of exchange control mechanisms, could influence the real’s exchange rate. In light of the foregoing, there can be no assurance we will be able to protect ourselves against the effects of adverse fluctuations of the Brazilian real against the U.S. dollar.

 

Any further downgrading of Brazil’s credit rating could adversely impact the Brazilian economy and our operations.

 

Credit ratings affect investors’ perceptions of risk and, as a result, the trading value of securities and yields required on future debt issuance in the capital markets. Rating agencies regularly evaluate Brazil and its sovereign ratings, which are based on a number of factors, including macroeconomic trends, fiscal and budgetary conditions, indebtedness metrics and the prospect of changes in any of these factors.

 

Rating agencies began the classification review of Brazil’s sovereign credit rating in September 2015. Brazil lost its investment grade status by the three main rating agencies. On September 30, 2015, S&P initially reduced Brazil’s credit rating from BBB- to BB+ and, subsequently, in February 2016, reduced it again from BB+ to BB, and maintained its negative outlook on the rating, citing a worsening credit situation since the first downgrade. In February 2018, S&P

 

41

 

lowered its long term rating for Brazil’s sovereign credit from BB to BB-, with a stable outlook, citing budget deficit and less timely and effective reform policymaking. In December 2015, Moody’s placed Brazil’s Baa3 issuer and bond ratings on review for a downgrade, and subsequently downgraded Brazil’s issuer and bond ratings to below investment grade, to Ba2 with a negative outlook. In April 2018, Moody’s affirmed its Ba2 rating but changed its outlook from negative to stable, citing stabilization of macroeconomic conditions, signs of recovery in the economy, falling inflation rates and a clearer fiscal outlook as reasons for the change. Fitch Ratings Inc. (“Fitch”) downgraded Brazil’s sovereign credit rating to BB+ with a negative outlook in December 2015 and again to BB in May 2016, with a negative outlook. In February 2018, Fitch lowered its long term rating for Brazil’s sovereign credit from BB to BB-, with a stable outlook, which was reaffirmed on August 2018. As a result, Brazil lost its investment grade status with all three major rating agencies and, consequently, the trading prices of securities of the Brazilian debt and equity markets were negatively affected. If the Brazilian federal government is unable to gather the required support in the Brazilian Congress to pass additional specific reforms, the Brazilian sovereign rating could be further downgraded.

 

Any further downgrade of Brazil’s sovereign credit ratings could heighten investors’ perception of risk and, as a result, adversely affect the Brazilian economy and our operations.

 

The developing consequences of the Samarco and Brumadinho dam failures may adversely affect us.

 

On November 5, 2015, the Samarco Mineração S.A. (“Samarco”) iron ore operations experienced a tailings dam failure that resulted in a release of mine tailings, flooding the communities of Bento Rodrigues, Gesteira and Paracatu and impacting other communities downstream and the environment of the Rio Doce basin. Samarco is a joint venture owned equally by BHP Billiton Brasil Limitada and Vale S.A.

 

On January 25, 2019, the Córrego do Feijão mine owned by Vale S.A. experienced a tailings dam failure that resulted in a release of mine tailings, flooding the communities of Brumadinho and impacting other communities downstream and the environment of the Rio Paraopeba.

 

The heightened awareness of mining impact particularly in Brazil following the Samarco and Brumadinho dam collapses in 2015 and 2019, respectively, as well as increased regulatory oversight may result in the amount and timing of future environmental and related expenditures to vary substantially from those currently anticipated. We may encounter delays in obtaining environmental and other operating licenses, or not be able to obtain and/or renew an authorization, permit and/or license. These events and additional costs may have a negative impact on our operations and have an adverse effect on our financial performance.

 

The heightened awareness of the potential impacts of mining activities following the Brumadinho dam failure as well as increased regulatory oversight may cause the amount and timing of future environmental and related expenditures to vary substantially from those currently anticipated and we may encounter delays in obtaining environmental and other operating licenses, or not be able to obtain and/or renew an authorization, permit and/or license. These events and additional costs may have a negative impact on our operations and have an adverse effect on our financial performance.

 

DIVIDENDS

 

The constating documents of the Company do not limit its ability to pay dividends on its Common Shares, however. The Company has not paid any dividends since incorporation. In addition, the payment of dividends in the future, if any, will be made at the discretion of the Board.

 

DESCRIPTION OF CAPITAL STRUCTURE

 

The authorized capital of the Company consists of an unlimited number of Common Shares. As of December 31, 2020 there were 58,778,938 Common Shares issued and outstanding (587,789,389 Common Shares on a pre-2021 Share Consolidation basis). As of the date of this AIF, the Company had 64,505,352 Common Shares issued and outstanding, 573,541 Common Shares reserved for issuance for stock options granted to directors, officers, employees and

 

42

 

consultants, 203,775 Common Shares reserved for issuance upon vesting of restricted share units (“RSU”), and approximately 1,858,536 Common Shares reserved for issuance upon the exercise of share purchase warrants.

 

Common Shares

 

Holders of Common Shares are entitled to receive notice of and to attend any meetings of shareholders and shall have one vote per share at all meetings, except meetings at which only holders of another class or series of shares are entitled to vote separately as such class or series. Holders of Common Shares are entitled to receive on a pro rata basis such dividends, if any, as and when declared by the Board and, upon liquidation, dissolution or winding up of the Company, are entitled to receive on a pro rata basis the net assets of the Company after payment of debts and other liabilities, in each case subject to the rights, privileges, restrictions and conditions attaching to any other series or class of shares ranking senior in priority to or on a pro rata basis with the holders of Common Shares. The Common Shares do not carry any pre-emptive, subscription, redemption or conversion rights, nor do they contain any sinking or purchase fund provisions.

 

On March 1, 2021, shareholders of the Company approved, at a special meeting of shareholders, a consolidation of the Company’s outstanding Common Shares on the basis of up to 10 pre-consolidation shares for 1 post-consolidation Common Share. The Company sought the approval of the consolidation in order to (i) broaden the pool of investors that may consider investing or be able to invest in the Company, and (ii) enable the Company to satisfy certain minimum trading price requirements of senior stock exchanges in the United States for a potential listing of the Company’s Common Shares. The Company is considering a potential listing of the Common Shares in the United States with the view of increasing access to U.S. capital markets and enhancing overall shareholder value—particularly as the Company continues to strategically develop its recently launched U.S.-based Largo Clean Energy division into an industry-leading, vertically integrated vanadium redox flow battery business.

 

On March 4, 2021, the Board implemented a consolidation of the Company’s outstanding Common Shares on the basis of 10 pre-consolidation share for every 1 post-consolidation Common Shares. The Common Shares began trading on a post-2021 Share Consolidation basis on March 8, 2021. The 2021 Share Consolidation resulted in a reduction of the issued and outstanding Common Shares from 645,053,473 to 64,505,352. Common Shares reserved for issuance on the Company equity and incentive plans and on issued and outstanding warrants to acquire Common Shares were adjusted to reflect the 2021 Share Consolidation.

 

Incentive Options

 

On June 8, 2020, shareholders adopted a 10% rolling share compensation plan under which the Company may issue RSUs, and options (“Options”) to purchase Common Shares. Unlike the Options, the RSUs do not require the payment of any monetary consideration to the Company. Instead, each RSU represents a right to receive one Common Share following the attainment of vesting criteria determined at the time of the award.

 

MARKET FOR SECURITIES

 

Trading Price and Volume

 

The Common Shares trade on the TSX under the symbol “LGO”. The table below shows the price ranges and volume of trading for each month of the financial year ended December 31, 2020 and for each month of the current financial year up to the date of this AIF. Subsequent to the shareholder approval granted at the Company’s special meeting of shareholders held on March 1, 2021, the Board implemented a consolidation of the Company’s Common Shares on 10 pre-consolidation shares for 1 post-consolidation share. The trading prices and volumes for periods prior to March 8, 2021 in the below table appear on a pre-2021 Share Consolidation basis.

 

Month

 

High(C$)

 

Low(C$)

 

Volume

 

(2021)

 

 

 

 

 

 

 

March 8 — 16

 

21.74

 

18.07

 

730,036

 

March 1-5

 

2.02

 

1.75

 

6,546,085

 

 

43

 

Month

 

High(C$)

 

Low(C$)

 

Volume

 

February

 

2.10

 

1.56

 

20,488,175

 

January

 

2.18

 

1.40

 

21,233,615

 

(2020)

 

 

 

 

 

 

 

December

 

1.66

 

1.02

 

36,265,700

 

November

 

1.12

 

0.89

 

8,375,559

 

October

 

1.10

 

0.92

 

4,759,041

 

September

 

1.15

 

0.98

 

5,535,491

 

August

 

1.23

 

1.00

 

6,935,961

 

July

 

1.14

 

0.84

 

9,299,754

 

June

 

1.07

 

0.77

 

8,073,353

 

May

 

1.10

 

0.86

 

5,567,820

 

April

 

1.15

 

0.65

 

6,469,982

 

March

 

0.93

 

0.56

 

8,838,565

 

February

 

1.16

 

0.84

 

7,567,485

 

January

 

1.19

 

0.98

 

5,317,756

 

 

DIRECTORS AND OFFICERS

 

The following table sets forth the name, province of residence and position held with the Company of each director and executive officer effective as of the date of this AIF. All directors hold office until the next annual meeting of shareholders of the Company or until their successors are elected or appointed.

 

Name and
Residence

 

Current Position(s)
with the Company

 

Principal Occupation

Alberto Arias
Florida,
United States

 

Non-Executive Chair

 

Director since: April 2011

 

Committee Membership(s):

· Compensation

· Corporate Governance

· Sales

 

Mr. Arias is the founder and Portfolio Manager of Arias Resource Capital Management LP and has over 25 years of experience in the field of international mining finance. Prior to founding Arias Resource Capital Management LP, Mr. Arias worked for eight years at Goldman, Sachs & Co., most recently acting as Managing Director and Head of Equity Research for metals and mining in the U.S., Canada and Latin America. Prior to Goldman Sachs, Mr. Arias worked for four years at UBS Warberg as Executive Director and Analyst covering the Latin American metals and mining sector.

 

 

 

 

 

David Brace
Ontario,
Canada

 

Director since: June 26, 2012

Committee Membership(s):

· Audit
· Compensation
· Operations

 

Mr. Brace served as Chief Executive Officer of Karmin Exploration Inc. from September 2011 to October 2019. Between January through September of 2011, Mr. Brace served as President of Lambton Capital Inc., a private investment firm focused on evaluating mining investments. Prior to this, Mr. Brace served as the Chief Executive Officer and a director of GlobeStar Mining Corporation until that company’s acquisition by Perilya Limited in December of 2010. Prior to this, Mr. Brace served as Executive Vice-President of Business Development with Aur Resources until August of 2007.

 

 

 

 

 

Jonathan Lee
New York,
United States

 

Director since: April 4, 2019
Committee Membership(s):

· Operations
· Sales

 

Mr. Lee is a Vice President with the private equity firm Arias Resource Capital Management LP. Prior to Arias Resource Capital Management, Mr. Lee worked with Ambac Assurance Corporation, a global bond insurer. Prior to Ambac, Mr. Lee held positions with the investment firm Raging River Capital, the mining hedge fund Geologic Resource Partners LLC, and Byron Capital Markets Ltd. in Canada as a mining & metals equity research analyst. Additionally, Mr. Lee has prior experience as an Environmental Engineer

 

44

 

Name and
Residence

 

Current Position(s)
with the Company

 

Principal Occupation

 

 

 

 

with several construction and engineering firms. Mr. Lee previously sat on the boards of Park Lawn Company Ltd. and Bearing Lithium Corp. Mr. Lee earned his MBA from the Stern School of Business at New York University and holds a BS in Chemical Engineering with a minor in Economics from Tufts University.

 

 

 

 

 

Ian Robertson
Ontario,
Canada

 

Director since: March 16, 2021

 

Mr. Robertson has more than 30 years of experience in the origination and execution of global energy initiatives and is committed to the concept of sustainable development. From co-founding Algonquin Power & Utilities Corp’s predecessor in 1988, Ian served as Chief Executive Officer and a Director of Algonquin until July 2020. During his leadership tenure at Algonquin, Mr. Robertson drove the expansion of wind and solar energy modalities, as well as leading the company to become a sustainability focused North American regulated electric, natural gas and water utility with over 800,000 customers. Mr. Robertson also previously served on the Board of Directors of Algonquin’s affiliate Atlantica Yield plc, a publicly listed sustainable infrastructure company with over 1,551 megawatts of renewable energy generation capacity. Mr. Robertson currently serves as the CEO and a director for three NYSE listed SPACs, being Northern Genesis Acquisition Corp. (since June 2020), Northern Genesis Acquisition Corp. II (since Oct 2020) and Northern Genesis Acquisition Corp. III (since December 2020). Mr. Robertson received an electrical engineering degree from the University of Waterloo, a Master of Business Administration from York University, and a Master of Law from the Law School of the University of Toronto. He is a professional engineer and holds a Chartered Financial Analyst designation.

 

 

 

 

 

Daniel Tellechea
Arizona,
United States

 

Director since: July 9, 2015

Committee Membership(s):

· Audit
· Corporate

   Governance
· Operations
· Sales

 

Mr. Tellechea has business experience in Brazil and extensive experience in international mining, most recently serving as President & CEO of Sierra Metals, Inc. between 2007 and 2014, a Toronto based mining company listed on both the Toronto (TSX) and Lima (BVL) Stock Exchanges with assets in Mexico and Peru. Prior to Sierra Metals, Mr. Tellechea was President and CEO of Asarco LLC from 2003 to 2005, he served as the Managing Director of Finance and Administration for Asarco’s parent, Grupo Mexico from 1994 to 2003 and also served as Asarco’s Chief Financial Officer and Vice-president of finance for Southern Copper Corporation from 1999 to 2003, which was majority owned by Grupo Mexico.

 

 

 

 

 

Koko Yamamoto
Ontario,
Canada

 

Director since: July 9, 2015

Committee Membership(s):

· Audit
· Compensation
· Corporate Governance

 

Ms. Yamamoto is a chartered professional accountant. She is a partner at McGovern Hurley LLP, a CPAB registered firm, since 2003 and her practice includes a focus on assurance engagements for reporting issuers in the resource sector. Ms. Yamamoto is involved in initial public offerings and private placements, mergers and acquisitions. Ms. Yamamoto is also registered as a panel auditor with the Investment Industry Regulatory Organization of Canada (IIROC), which enables her to conduct audits of investment dealers. Prior to joining McGovern Hurley LLP in 1998, Ms. Yamamoto worked for a start-up Japanese medical technology company, both in Tokyo and San Francisco.

 

45

 

Name and
Residence

 

Current Position(s)
with the Company

 

Principal Occupation

Paulo Misk
Minas Gerais,
Brazil

 

President & Chief Executive Officer
Director since: September 9, 2019

 

Mr. Misk is a mining engineer with over 28 years’ experience in operational management at mining facilities for various large multi-national mining companies across a wide range of commodities, including: niobium, chromite, iron, tin, gold, lithium and a range of other industrial minerals. Prior to becoming Chief Executive Officer of Largo in September, 2019, Mr. Misk served as Chief Operating Officer of Vanádio de Maracás S.A., Largo’s operating subsidiary from November, 2014 to September 8, 2019. Prior thereto, Mr. Misk ran Anglo American’s Catalão Project from 2011 to 2014 where he was promoted to Head of Niobium Operations after serving as Niobium General Manager for one year. Mr. Misk’s prior experience also includes several years as Talc Operational Director and as Geology, Mining Operation Manager for GP Investments’ Magnesita Refratátorios project in Brazil between 2002 and 2010. Additionally, he served as Operational Director for AMG Group where he managed their tantalum, niobium, tin, feldspar and lithium operations between 2010 and 2011. Between 1994 and 2002, Mr. Misk spent his earlier career with AMG Group as Industrial Minerals Manager after being promoted from Tantalum and Niobium Division Manager.

 

 

 

 

 

Ernest Cleave
Ontario, Canada

 

Chief Financial Officer

 

Mr. Cleave is a financial professional with over 20 years’ experience in finance strategy, compliance, financial reporting, internal control and strategic planning. Prior to joining the Company, Mr. Cleave served as a director, CFO and corporate controller and in senior finance positions for large, multi-national companies in the mining, manufacturing and retail sectors, including Goldcorp Inc. and Falconbridge Limited. Mr. Cleave started his career with PricewaterhouseCoopers and holds a CA designation in both Australia and New Zealand, the CPA and CMA designations in Canada, the CPA and FIPA designations in Australia and the CIMA designation in the United Kingdom.

 

 

 

 

 

Luciano Chaves
Bahia, Brazil

 

Vice President of Finance and Administration at Vanádio

 

Mr. Chaves has over 20 years of experience in financial management in a range of different industries. Prior to joining the Company, he led the finance department of multinational mining and services companies in Latin America, including Sibelco and Hewitt. Since joining the Company in 2011, his understanding of both domestic and international business environment has brought a differentiated contribution to the Maracás Menchen Mine.

 

Mr. Alberto Arias is the sole director of each of the general partners of Arias Resource Capital Fund II L.P. and Arias Resource Capital Fund II (Mexico) L.P. which, as at the date of this AIF, in aggregate beneficially own 27,976,487 of our Common Shares representing approximately 43.37% of our outstanding Common Shares. Mr. Arias also owns, directly, 42,533 Common Shares representing approximately 0.07% of our outstanding Common Shares. Our remaining directors and executive officers, as a group, beneficially own, directly or indirectly, or exercise control or direction over, 124,504 Common Shares, representing less than 1% of the total number of Common Shares outstanding.

 

46

 

Corporate Cease Trade Orders, Bankruptcies, Penalties or Sanctions

 

Other than as set forth below, no director, executive officer or chief financial officer of the Company:

 

(a)         is, as at the date of this document, or has been, within ten years before the date of this AIF, a director, chief executive officer or chief financial officer of any company (including the Company) that, while that person was acting in that capacity: (i) was the subject of a cease trade or similar order or an order that denied the relevant company access to any exemption under the securities legislation, for a period of more than 30 consecutive days; (ii) was subject to an event that resulted, after the director, chief executive officer or chief financial officer ceased to be a director, chief executive officer or chief financial officer, in the company being the subject of a cease trade order or similar order or an order that denied the relevant company access to any exemption under securities legislation, for a period of more than 30 consecutive days; or (iii) within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets, or

 

(b)         has, within the ten years before the date of this AIF, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the proposed director.

 

Except as set out below, no director or executive officer of the Company, or a shareholder holding sufficient number of securities of the Company to affect materially the control of the Company, has been subject to: (i) any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority; or (ii) any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor in making an investment decision.

 

From March 28, 2013 until January 21, 2014, Mr. Arias served as a director on the board of Colossus Minerals Inc. (“Colossus”). On January 14, 2014, Colossus filed a notice of intention to make a proposal under the Bankruptcy and Insolvency Act (Canada). Colossus was delisted from the TSX effective February 21, 2014.

 

Mr. Tellechea was a director of Mercator Minerals, Ltd. until September 4, 2014. Mercator filed a notice of intention to make a proposal under the Canadian Bankruptcy and Insolvency Act on August 26, 2014.

 

Conflicts of Interest

 

Certain of the Company’s directors and officers serve or may agree to serve as directors or officers of other reporting companies or have significant shareholdings in other reporting companies. For a list of the other reporting issuers in which directors of the Company also serve as directors, please see the most recent management information circular of the Company dated May 1, 2020 for the Company’s June 8, 2020 annual and special meeting of shareholders. To the extent that such other companies may participate in ventures in which the Company may participate, the directors of the Company may have a conflict of interest in negotiating and concluding terms respecting the extent of such participation. In the event that such a conflict of interest arises at a meeting of the Company’s directors, a director who has such a conflict will step out of the room during discussions and abstain from voting for or against the approval of such participation or such terms. From time to time, several companies may participate in the acquisition, exploration and development of natural resource properties thereby allowing for their participation in larger programs, permitting involvement in a greater number of programs and reducing financial exposure in respect of any one program. It may also occur that a particular company will assign all or a portion of its interest in a particular program to another of these companies due to the financial position of the company making the assignment. Under the laws of Canada, the directors of the Company are required to act honestly, in good faith and in the best interests of the Company. In determining whether or not the Company will participate in a particular program and the interest therein to be acquired by it, the directors will primarily consider the degree of risk to which the Company may be exposed and its financial position at that time.

 

47

 

AUDIT COMMITTEE DISCLOSURE

 

The purposes of the audit committee of the Board of Directors (the “Audit Committee”) are to assist the Board of Directors’ oversight of: the integrity of the Company’s financial statements; the Company’s compliance with legal and regulatory requirements; the qualifications and independence of the Company’s independent auditors; and the performance of the independent auditors and the Company’s internal audit function.

 

National Instrument 52-110 — Audit Committees of the Canadian Securities Administrators (“NI 52-110”) governs composition and function of audit committees for every TSX listed company, including the Company. NI 52-110 requires the Company to have a written audit committee Charter and to make the disclosure required by Form 52-110F1, which includes disclosure of the text of the audit committee charter in the management information circular of the Company wherein management solicits proxies from the security holders of the Company for the purpose of electing directors to the Board.

 

Audit Committee Charter

 

The Board of Directors has developed a written Audit Committee charter (the “Charter”). A copy of the Charter is attached hereto as Schedule “B”.

 

Composition of the Audit Committee

 

The Audit Committee is comprised of three directors: Koko Yamamoto (Chair), David Brace and Daniel Tellechea. Each member of the Audit Committee is financially literate and Koko Yamamoto and Daniel Tellechea are independent, as such terms are defined in NI 52-110.

 

Relevant Education and Experience

 

For a description of the education and experience of each Audit Committee member that is relevant to the performance of his responsibilities as a member of the Audit Committee, see “Directors and Officers”.

 

Reliance on Certain Exemptions

 

At no time since the Company’s listing on the TSX in July, 2016 has the Company relied on either (a) an exemption in section 2.4 of NI 52-110 (De Minimis Non-audit Services); or (b) an exemption from NI 52-110, in whole or in part, granted under Part 8 (Exemptions) of NI 52-110. Prior to the Company’s listing on the TSX, it had relied on the exemption provided for in section 6.1 of NI 52-110, Part 5 (Reporting Obligations).

 

Audit Committee Oversight

 

At no time since the commencement of the Company’s most recently completed financial year has there been a recommendation of the Audit Committee to nominate or compensate an external auditor which was not adopted by the Board of Directors.

 

Pre-Approval Policies and Procedures

 

The Audit Committee has not adopted specific policies and procedures for the engagement of non-audit services.

 

Audit Fees

 

The Company appointed PricewaterhouseCoopers LLP, Chartered Professional Accountants, as its auditor. The PricewaterhouseCoopers LLP fees incurred by the Company, excluding expenses, in each of the last two fiscal years for audit services were C$133,000 in 2020, and C$100,000 in 2019.

 

48

 

The Company incurred fees of R$468,940 for the fiscal year ended December 31, 2020 relating to PricewaterhouseCoopers Brazil, external auditors of Vanádio in Brazil, R$342,289 for the fiscal year ended December 31, 2019.

 

The Company incurred fees of €35,000 for the fiscal year ended December 31, 2020 relating to PricewaterhouseCoopers Ireland, external auditors of Largo Ireland, in Ireland and €15,000 for the fiscal year ended December 31, 2019.

 

Audit-Related Fees

 

PricewaterhouseCoopers LLP fees incurred in each of the last two fiscal years for assurance and related services related to the performance of the auditor’s review for the Company’s financial statements not included in audit fees above were $45,000 in 2020 and $45,000 in 2019.

 

Tax Fees

 

PricewaterhouseCoopers LLP fees incurred in each of the last two fiscal years for professional tax services rendered were C$79,393 in 2020 and C$144,925 in 2019. The professional tax services related to corporate tax compliance, tax planning and other related tax services.

 

PricewaterhouseCoopers Brazil billed Vanádio R$138,667 in the fiscal year ending December 31, 2020 and R$43,837 in the fiscal year ending December 31, 2019 for tax compliance in Brazil.

 

PricewaterhouseCoopers Ireland billed Largo Ireland €113,386 in the fiscal year ending December 31, 2020 for tax advisory services in Ireland and €31,000 for the fiscal year ending December 31, 2019

 

All Other Fees

 

PricewaterhouseCoopers LLP fees incurred in each of the last two fiscal years for other advisory services rendered were $nil in 2020 and $20,500 in 2019.

 

LEGAL PROCEEDINGS AND REGULATORY ACTIONS

 

Except as disclosed below, to the best of the Company’s knowledge, there were no legal proceedings during the year ended December 31, 2020 to which the Company was a party or of which any of the Company’s property was subject that would have had a material adverse effect on the Company, nor are there any such legal proceedings existing or contemplated to which the Company is a party or of which any of the Company’s property is subject that would have a material adverse effect on the Company.

 

There have been no penalties or sanctions imposed against the Company by a court relating to securities legislation or by a securities regulatory authority during the fiscal year ended December 31, 2020 or any other time that would likely be considered important to a reasonable investor making an investment decision in the Company. The Company has not entered into any settlement agreements with a court relating to securities legislation or with a securities regulatory authority during the fiscal year ended December 31, 2020.

 

INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS

 

No director or executive officer of the Company or any person or company who or that beneficially owns, or controls or directs, directly or indirectly, more than 10% of the Company’s Common Shares (or any associate of affiliate of that person or company) has had any direct or indirect material interest in any transaction involving the Company since January 1, 2018 to the date hereof, or in any proposed transaction which has materially affected or would materially affect the Company or its subsidiaries other than as disclosed herein.

 

49

 

TRANSFER AGENT AND REGISTRAR

 

The Company’s transfer agent is TSX Trust Company which is located in Toronto, Ontario.

 

MATERIAL CONTRACTS

 

Except for contracts entered into by the Company in the ordinary course of business or otherwise disclosed herein, the only material contracts entered into during the financial year ended December 31, 2020, or which remain in effect can reasonably be regarded as presently material are:

 

·                  Governance Agreement, see “Glossary”; and

 

·                  Director Nomination Agreement, see “Glossary”.

 

INTERESTS OF EXPERTS

 

Porfírio Cabaleiro Rodriguez, Mining Engineer, BSc (Mine Eng), MAIG employed by GE21, Leonardo Apparicio da Silva, Mining Engineer, BSc (Min Eng), MSc (Met Eng), MAIG associated to GE21, and Fabio Valerio Xavier, Geologist, BSc, Geol, MAIG, associated to GE21, were the authors of the Technical Report — see “Description of the Business - Material Project  — Maracás Menchen Mine”.

 

To the knowledge of the Company, none of the aforementioned individuals had an interest in any securities or other properties of the Company, its associates or affiliates as at the date the individual prepared the applicable report or as at the date hereof, and none of the aforementioned individuals holds any other interest in the assets of the Company nor do they expect to receive such an interest.

 

PricewaterhouseCoopers LLP, Chartered Professional Accountants, are the auditors of the Company and have performed the audit in respect of the audited annual consolidated financial statements of the Company for the years ended December 31, 2020 and December 31, 2019. PricewaterhouseCoopers LLP, Chartered Professional Accountants were independent of the Company in accordance with the applicable rules of professional conduct.

 

ADDITIONAL INFORMATION

 

Additional information, including directors’ and officers’ remuneration and indebtedness, principal holders of the Company’s securities, and securities authorized for issuance under the Company’s stock option plan is contained in the management information circular of the Company dated May 1, 2020.

 

Additional financial information is provided in the Company’s annual consolidated financial statements and management’s discussion and analysis for the year ended December 31, 2020. These documents and other information about the Company can be found on SEDAR under the Company’s profile at www.sedar.com.

 

50

 

SCHEDULE A
GLOSSARY

 

“2017 Facility”

 

In December 2016, the Company entered into definitive agreements with the Banks for a new debt facility and the restructuring of its existing facilities with the Banks related to its Maracás Menchen Mine. This 2017 Facility provided the Company with a working capital facility of up to R$140 million to be used for the payment of principal and interest falling due during 2017 on the existing loan from the BNDES Facility as well as principal and interest falling due during 2017 on the existing debt facilities.

 

 

 

“AIF”

 

means this annual information form.

 

 

 

“ARC Funds”

 

means, collectively, Arias Resource Capital Fund LP, Arias Resource Capital Fund II LP, and Arias Resource Capital Fund II (Mexico) LP.

 

 

 

“Audit Committee”

 

means the audit committee of the Board.

 

 

 

“Banco Pine Debt Settlement”

 

means the restructuring of the Company’s Pine Facility (defined herein) in December 2017 through the conversion of its outstanding debt of $5,991,687.51 into Units. Banco Pine S.A received 7,306,934 units, on a pre-2021 Share Consolidation basis, in full and final satisfaction of its debt.

 

 

 

“Banks”

 

means, collectively, Banco Itaú BBA S.A., Banco Votorantim S.A. and Banco Bradesco S.A.

 

 

 

“BNDES”

 

means the Brazilian Development Bank or Banco Nacional do Desenvolvimento.

 

 

 

“BNDES Facility”

 

means the agreement with BNDES for a R$333 million (approximately US$166 million equivalent) debt financing facility for the construction and development of the Maracás Menchen Mine.

 

 

 

“BNDES Facilities”

 

means, collectively, the (i) debt financing facility, dated as of June 22, 2012, by and between Vanádio and BNDES, as amended, restated, supplemented or otherwise modified from time to time; (ii) the debt facility, dated as of February 29, 2016, by and between the Company and the Consortium, as amended, restated, supplemented or otherwise modified from time to time, (iii) the debt facility, dated as of December 23, 2016, by and between the Company and the Consortium, as amended, restated, supplemented or otherwise modified from time to time, and (iv) the export credit facilities by and among Vanádio, Votorantim S.A. and Banco Itaú BBA S.A.

 

 

 

“Board”

 

means the board of directors of the Company.

 

 

 

“Bridge Loan”

 

means a US$2 million six-month term loan entered into with a shareholder of the Company in April 2017 (and subsequently repaid by the Company in December 2017) pursuant to which the Company issued 400,000 Common Share purchase warrants to the lender with each such warrant being exercisable to acquire one Common Share at a price of C$0.50 per share until December 31, 2020, on a pre-2021 Share Consolidation basis.

 

 

 

“Campbell Pit”

 

refers to the main vanadium deposit, the Campbell deposit, of the Maracás Menchen Mine.

 

 

 

“Campo Alegre Project”

 

means the Campo Alegre de Lourdes iron-titanium-vanadium exploration project in Brazil.

 

 

 

“Common Shares”

 

means the common shares in the capital of the Company.

 

A-1

 

“Currais Novos Project”

 

means the Currais Novos tungsten tailings project in Rio Grande De Norte, Brazil.

 

 

 

“CRU”

 

means the CRU Indices, which provide price assessments in the commodity markets.

 

 

 

“December 2017 Financing”

 

means the non-brokered private placement offering of an aggregate of 35,985,749 units at a price of C$0.82 per unit on a pre-2021 Share Consolidation basis for aggregate gross proceeds of approximately C$29.5 million (including the Banco Pine Debt Settlement) and completed in December 2017. Each unit was comprised of one Common Share and one-half of one Common Share purchase warrant, with each whole warrant entitling the holder thereof to purchase one Common Share at a price of C$1.15 per share (on a pre-2021 Share Consolidation basis) for a period expiring five years from the date of issuance.

 

 

 

“Director Nomination Agreement”

 

means the amended and restated director nomination agreement entered into between the Company and ARC Funds in May 2015, as amended and restated March 2016, enabling them to designate (a) a total of three (3) additional persons to be nominated for election to Largo’s Board for election by Largo shareholders for so long as the ARC Funds, whether individually or together, own at least 50% of the issued and outstanding Common Shares, (b) a total of two (2) additional persons to be nominated for election to Largo’s Board for election by Largo shareholders for so long as the ARC Funds, whether individually or together, own less than 50% but not less than 40% of the issued and outstanding Common Shares, and (c) a total of one (1) additional person to be nominated for election to Largo’s Board for election by Largo shareholders, for so long as the ARC Funds, whether individually or together, own less than 40% but not less than 20% of the issued and outstanding Common Shares. These nomination rights are supplemented the ARC Funds’ existing right to nominate one (1) director to the Board under the Governance Agreement.

 

 

 

“Expansion”

 

means the Company’s planned expansion of the Maracás Menchen Mine to increase production capacity from the nameplate rate of approximately 800 t month of V2O5 to 1,000 t/month, being an increase of 25% over nameplate capacity.

 

 

 

“feasibility study”

 

is a comprehensive technical and economic study of the selected development option for a mineral project that includes appropriately detailed assessments of applicable Modifying Factors together with any other relevant operational factors and detailed financial analysis that are necessary to demonstrate, at the time of reporting, that extraction is reasonably justified (economically mineable). The results of the study may reasonably serve as the basis for a final decision by a proponent or financial institution to proceed with, or finance, the development of the project. The confidence level of the study will be higher than that of a Pre Feasibility Study.

 

 

 

“FeV”

 

means Ferrovanadium, an alloy formed by combining iron (Fe) and vanadium (V).

 

 

 

“Governance Agreement”

 

means the amended and restated investor nomination rights and governance agreement, made as of the 9th day of March, 2012, by the Company and the Lead Investors pursuant to which the Lead Investors are each entitled, among other things, to nominate one director to the Board so long as their holding of Common Shares represents no less than 10% of the issued and outstanding Common Shares.

 

 

 

“Indicated Mineral Resource”

 

is that part of a Mineral Resource for which quantity, grade or quality, densities, shape and physical characteristics are estimated with sufficient confidence to allow the application of Modifying Factors in sufficient detail to support mine planning and evaluation of the economic viability of the deposit. Geological evidence is derived from adequately detailed and reliable exploration, sampling and testing and is sufficient to assume geological and grade or quality continuity between points of observation. An Indicated Mineral Resource has a lower level of

 

A-2

 

 

 

confidence than that applying to a Measured Mineral Resource and may only be converted to a Probable Mineral Reserve.

 

 

 

“INEMA”

 

means Instituto do Meio Ambiente e Recursos Hídricos.

 

 

 

“Inferred Mineral Resource”

 

is that part of a Mineral Resource for which quantity and grade or quality are estimated on the basis of limited geological evidence and sampling. Geological evidence is sufficient to imply but not verify geological and grade or quality continuity. An Inferred Mineral Resource has a lower level of confidence than that applying to an Indicated Mineral Resource and must not be converted to a Mineral Reserve. It is reasonably expected that the majority of Inferred Mineral Resources could be upgraded to Indicated Mineral Resources with continued exploration.

 

 

 

“January 2017 Financing”

 

means the non-brokered private placement offering of an aggregate of 35,740,119 units at a price of C$0.45 per unit on a pre-2021 Share Consolidation basis for aggregate gross proceeds of approximately C$16.1 million, completed in January 2017. Each unit was comprised of one Common Share and one warrant exercisable into one Common Share at a price of C$0.65 per share (on a pre-2021 Share Consolidation basis) for a period ending three years from the date of issuance. ARC Funds purchased 14,395,675 units and Cranley Investments Holdings LCC acquired 10,450,000 units (each on a pre-2021 Share Consolidation basis).

 

 

 

“kg”

 

means kilogram.

 

 

 

“km”

 

means kilometer.

 

 

 

“kt”

 

thousand tonnes.

 

 

 

“Lead Investors”

 

means ARC Funds, EP Cayman Ltd., Eton Park Master Fund, Ltd. and Ashmore Cayman SPC No. 2 Limited.

 

 

 

“m”

 

means meter.

 

 

 

“Maracás Menchen Mine”

 

means the Maracás vanadium mine in Bahia State, Brazil, later renamed the Maracás Menchen Mine, which includes the Campbell Pit and the Ford Facility.

 

 

 

“Maracás Project”

 

means the vanadium deposit property in the municipality of Maracás in eastern Bahia State, Brazil.

 

 

 

“March 2016 Financing”

 

means the non-brokered private placement offering of an aggregate of 209,392,178 units at a price of C$0.175 per unit on a pre-2021 Share Consolidation basis for aggregate gross proceeds of approximately C$36.6 million, completed in March 2016. Each unit was comprised of one Common Share and one-half of one Common Share purchase warrant, with each whole warrant entitling the holder thereof to acquire one Common Share at a price of C$0.29 per share (on a pre-2021 Share Consolidation basis) for a period of five years from the date of issuance.

 

 

 

“Measured Mineral Resource”

 

is that part of a Mineral Resource for which quantity, grade or quality, densities, shape, and physical characteristics are estimated with confidence sufficient to allow the application of Modifying Factors to support detailed mine planning and final evaluation of the economic viability of the deposit. Geological evidence is derived from detailed and reliable exploration, sampling and testing and is sufficient to confirm geological and grade or quality continuity between points of observation. A Measured Mineral Resource has a higher level of confidence than that applying to either an Indicated Mineral Resource or an Inferred Mineral Resource. It may be converted to a Proven Mineral Reserve or to a Probable Mineral Reserve.

 

A-3

 

“Mineral Reserve”

 

is the economically mineable part of a Measured and/or Indicated Mineral Resource. It includes diluting materials and allowances for losses, which may occur when the material is mined or extracted and is defined by studies at Pre Feasibility or Feasibility level as appropriate that include application of Modifying Factors. Such studies demonstrate that, at the time of reporting, extraction could reasonably be justified. The reference point at which Mineral Reserves are defined, usually the point where the ore is delivered to the processing plant, must be stated. It is important that, in all situations where the reference point is different, such as for a saleable product, a clarifying statement is included to ensure that the reader is fully informed as to what is being reported. The public disclosure of a Mineral Reserve must be demonstrated by a Pre Feasibility Study or Feasibility Study.

 

 

 

“Mineral Resource”

 

is a concentration or occurrence of solid material of economic interest in or on the Earth’s crust in such form, grade or quality and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, grade or quality, continuity and other geological characteristics of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge, including sampling.

 

 

 

“Modifying Factors”

 

are considerations used to convert Mineral Resources to Mineral Reserves. These include, but are not restricted to, mining, processing, metallurgical, infrastructure, economic, marketing, legal, environmental, social and governmental factors.

 

 

 

“NAN”

 

Novo Amparo Norte.

 

 

 

“Near Mine Targets” or “NMT”

 

has the meaning given to that term under heading “Description of Mineral Properties — The Maraçãs Menchen Mine”.

 

 

 

“NI 43-101”

 

means the Canadian Securities Administrators National Instrument 43-101 — Standards of Disclosure for Mineral Projects.

 

 

 

“Northern Dancer Project”

 

means the tungsten-molybdenum deposit property in Yukon Territory, Canada.

 

 

 

“October 2016 Financing”

 

means the non-brokered private placement offering of 11,111,111 units at a price of C$0.45 per unit on a pre-2021 Share Consolidation for aggregate gross proceeds of C$5 million, completed in October 2016. Each unit was comprised of one Common Share and one-half of one Common Share purchase warrant, with each whole warrant entitling the holder thereof to purchase one Common Share at a price of C$0.65 per share (on a pre-2021 Share Consolidation basis) for a period of three years from the date of issuance. The ARC Funds purchased 6,228,232 units and Cranley Investments Holdings LCC acquired 555,555 units on a pre-2021 Share Consolidation basis (each on a pre-2021 Share Consolidation basis).

 

 

 

“Offtake Agreement”

 

means the offtake agreement dated May 13, 2008 with Glencore International AG pursuant to which the Company agreed to sell in U.S. dollars to Glencore, and Glencore agreed to acquire, 100% of the V2O5 production at the Maracás Menchen Mine. The Offtake Agreement was terminated effective April 30, 2020. See “Description of the Business — Marketing and Distribution”.

 

 

 

“PEA”

 

has the meaning given to that term under heading “Description of Mineral Properties — The Maraçãs Menchen Mine”.

 

 

 

“Pine Facility”

 

means a $3.85 million short term loan facility entered into on March 2, 2016 with Banco Pine to roll over its then existing credit facility.

 

A-4

 

“Pre Feasibility Study”

 

is a comprehensive study of a range of options for the technical and economic viability of a mineral project that has advanced to a stage where a preferred mining method, in the case of underground mining, or the pit configuration, in the case of an open pit, is established and an effective method of mineral processing is determined. It includes a financial analysis based on reasonable assumptions on the Modifying Factors and the evaluation of any other relevant factors which are sufficient for a Qualified Person, acting reasonably, to determine if all or part of the Mineral Resource may be converted to a Mineral Reserve at the time of reporting. A Pre Feasibility Study is at a lower confidence level than a Feasibility Study.

 

 

 

“Probable Mineral Reserve”

 

is the economically mineable part of an Indicated, and in some circumstances, a Measured Mineral Resource. The confidence in the Modifying Factors applying to a Probable Mineral Reserve is lower than that applying to a Proven Mineral Reserve.

 

 

 

“Proven Mineral Reserve”

 

is the economically mineable part of a Measured Mineral Resource. A Proven Mineral Reserve implies a high degree of confidence in the Modifying Factors.

 

 

 

“tonnes” or “t”

 

means metric tonnes, where 1 tonne = 1,000 kg.

 

 

 

“t/a”

 

means tonnes per annum (year).

 

 

 

“Technical Report”

 

has the meaning given to that term under heading “Description of Mineral Properties — The Maraçãs Menchen Mine”.

 

 

 

“TSX”

 

means the Toronto Stock Exchange.

 

 

 

“V2O3”

 

means vanadium trioxide.

 

 

 

“V2O5”

 

means vanadium pentoxide, the form vanadium is, generally, converted to following extraction.

 

 

 

“Vanádio”

 

means Vanádio de Maracás S.A., a subsidiary of the Company.

 

 

 

“Vanádio’s Pine Facility”

 

means an up to R$80 million credit facility entered into on March 2, 2016 between Vanádio and Banco Pine, which facility was ultimately repaid in December 2017 pursuant to the Banco Pine Debt Settlement.

 

 

 

“vanadium”

 

vanadium is a naturally occurring chemical element with the symbol “V” and atomic number 23. It is a hard, silvery-grey, ductile, malleable transition metal.

 

 

 

“VPURE Flakes”

 

V2O5 flakes, have a guaranteed vanadium content of 98.5% and typical vanadium content of 99.0%.

 

 

 

“VPURE+ Flakes”

 

high purity V2O5 flakes, have a guaranteed vanadium content of 99.0% and a typical vanadium content of 99.9%.

 

 

 

“VPURE+ Powder”

 

V2O5 powder, has a guaranteed vanadium content of 99.0% and a typical vanadium content of 99.9%.

 

References to various elements, where not defined above, have the meaning given to them in the periodic table which is available in the public domain.

 

A-5

 

SCHEDULE B
AUDIT CHARTER

 

CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

 

Largo Resources Ltd.

 

Audit Committee Charter

 

This charter (the “Charter”) sets forth the purpose, composition, responsibilities, duties, powers and authority of the Audit Committee (the “Committee”) of the Board of Directors (the “Board”) of Largo Resources Ltd. (“Largo”).

 

1.                                      PURPOSE

 

1.1                               The purpose of the Committee is to assist the Board in fulfilling its oversight responsibilities with respect to:

 

·                                          financial reporting and disclosure requirements;

 

·                                          ensuring that an effective risk management and financial control framework has been implemented and tested by management of Largo; and

 

·                                          external and internal audit processes.

 

2.                                      COMPOSITION AND MEMBERSHIP

 

2.1                               The Board will appoint the members (“Members”) of the Committee after the annual general meeting of shareholders of Largo. The Members will be appointed to hold office until the next annual general meeting of shareholders of Largo or until their successors are appointed. The Board may remove a Member at any time and may fill any vacancy occurring on the Committee. A Member may resign at any time and a Member will cease to be a Member upon ceasing to be a director.

 

2.2                               The Committee will consist of at least three directors, all of who meet the criteria for financial literacy and who meet the criteria for independence established by applicable laws and the rules of the stock exchange upon which Largo’s securities are listed, including National Instrument 52-110 - Audit Committees. In addition, each director will be free of any relationship which could, in the view of the Board, be reasonably expected to interfere with the exercise of a member’s independent judgment.

 

2.3                               The Board will appoint one of the Members to act as the Chairperson of the Committee. The secretary of Largo (the “Corporate Secretary”) will be the secretary of all meetings and will maintain minutes of all meetings and deliberations of the Committee. In the absence of the Corporate Secretary at any meeting, the Committee will appoint another person who may, but need not, be a Member to be the secretary of that meeting.

 

3.                                      MEETINGS

 

3.1                               Meetings of the Committee will be held at such times and places as the Chairperson may determine, but in any event not less than four (4) times per year. Twenty-four (24) hours advance notice of each meeting will be given to each Member orally, by telephone, by email, unless all Members are present and waive notice, or if those absent waive notice before or after a meeting. Members may attend all meetings either in person or by conference call.

 

3.2                               At the request of the external auditors of Largo, the Chief Executive Officer or the Chief Financial Officer of Largo or any member of the Committee, the Chairperson will convene a meeting of the Committee. Any such request will set out in reasonable detail the business proposed to be conducted at the meeting so requested.

 

B-1

 

3.3                               The Chairperson, if present, will act as the Chairperson of meetings of the Committee. If the Chairperson is not present at a meeting of the Committee, then the Members present may select one of their number to act as Chairperson of the meeting.

 

3.4                               Two Members will constitute a quorum for a meeting of the Committee. Each Member will have one vote and decisions of the Committee will be made by an affirmative vote of the majority. The Chairperson will not have a deciding or casting vote in the case of an equality of votes. Powers of the Committee may also be exercised by written resolution signed by all Members.

 

3.5                               The Committee may invite from time to time such persons as it sees fit to attend its meetings and to take part in the discussion and consideration of the affairs of the Committee. The Committee will meet in camera without management at each meeting of the Committee.

 

3.6                               In advance of every regular meeting of the Committee, the Chairperson, with the assistance of the Corporate Secretary, will prepare and distribute to the Members and others, as deemed appropriate by the Chairperson, an agenda of matters to be addressed at the meeting together with appropriate briefing materials. The Committee may require officers and employees of Largo to produce such information and reports as the Committee may deem appropriate in order to fulfill its duties.

 

4.                                      DUTIES AND RESPONSIBILITIES

 

4.1                               The duties and responsibilities of the Committee as they relate to the following matters are to:

 

Financial Reporting and Disclosure

 

4.2                               Review and recommend to the Board for approval, the audited annual financial statements, including the auditors’ report thereon, the quarterly financial statements, management discussion and analysis, financial reports, guidance with respect to earnings per share, and any public release of financial information through press release or otherwise, with such documents to indicate whether such information has been reviewed by the Board or the Committee;

 

4.3                               Review and recommend to the Board for approval, where appropriate, financial information contained in any prospectus, annual information form, annual report to shareholders, management proxy circular, material change disclosure of a financial nature, and similar disclosure documents;

 

4.4                               Review with management of Largo and with external auditors significant accounting principles and disclosure issues and alternative treatments under International Financial Reporting Standards (“IFRS”), all with a view to gaining reasonable assurance that financial statements are accurate, complete and present fairly Largo’s financial position and the results of its operations in accordance with IFRS, as applicable.

 

4.5                               Annually review Largo’s corporate disclosure policy and recommend any proposed changes to the Board for consideration.

 

4.6                               Review the minutes from each meeting of the disclosure committee, established pursuant to Largo’s corporate disclosure policy, since the last meeting of the Committee.

 

4.7                               Review and assess the adequacy and effectiveness of Largo’s system of internal control and management information systems through discussions with management and the external auditor to ensure that Largo maintains:

 

a)                                the necessary books, records and accounts in sufficient detail to accurately and fairly reflect Largo’s transactions;

 

b)                                effective internal control systems; and

 

B-2

 

c)                                 adequate processes for assessing the risk of material misstatement of the financial statements and for detecting control weaknesses or fraud. From time to time the Committee will assess whether a formal internal audit department is necessary or desirable having regard to the size and stage of development of Largo at any particular time.

 

4.8                               Satisfy itself that management has established adequate procedures for the review of Largo’s disclosure of financial information extracted or derived from Largo’s financial statements.

 

4.9                               Satisfy itself that management has periodically assessed the adequacy of internal controls, systems and procedures in order to ensure compliance with regulatory requirements and recommendations.

 

4.10                        Review and discuss Largo’s major financial risk exposures and the steps taken to monitor and control such exposures, including the use of any financial derivatives and hedging activities.

 

4.11                        Review and assess, and in the Committee’s discretion make recommendations to the Board regarding, the adequacy of Largo’s risk management policies and procedures with regard to identification of Largo’s principal risks and implementation of appropriate systems to manage such risks, including an assessment of the adequacy of insurance coverage maintained by Largo.

 

4.12                        Review and assess annually, and in the Committee’s discretion make recommendations to the Board regarding Largo’s investment policy.

 

External Audit

 

4.13                        Recommend to the Board a firm of external auditors to be engaged by Largo.

 

4.14                        Ensure the external auditors report directly to the Committee on a regular basis.

 

4.15                        Review the independence of the external auditors, including a written report from the external auditors respecting their independence and consideration of applicable auditor independence standards.

 

4.16                        Review and approve the fee, scope and timing of the audit and other related services rendered by the external auditors.

 

4.17                        Review the audit plan of the external auditors prior to the commencement of the audit.

 

4.18                        Establish and maintain a direct line of communication with Largo’s external and internal auditors.

 

4.19                        Meet in camera with only the auditors, with only management, and with only the members of the Committee.

 

4.20                        Review the performance of the external auditors who are accountable to the Committee and the Board as representatives of the shareholders, including the lead partner of the independent auditor’s team.

 

4.21                        Oversee the work of the external auditors appointed by the shareholders of Largo with respect to preparing and issuing an audit report or performing other audit, review or attest services for Largo, including the resolution of issues between management of Largo and the external auditors regarding financial disclosure.

 

4.22                        Review the results of the external audit and the report thereon including, without limitation, a discussion with the external auditors as to the quality of accounting principles used, any alternative treatments of financial information that have been discussed with management of Largo, and the ramifications of their use as well as any other material changes. Review a report describing all material written communication between management and the auditors such as management letters and schedule of unadjusted differences.

 

B-3

 

4.23                        Discuss with the external auditors their perception of Largo’s financial and accounting personnel, records and systems, the cooperation which the external auditors received during their course of their review, and availability of records, data and other requested information and any recommendations with respect thereto.

 

4.24                        Review the reasons for any proposed change in the external auditors which is not initiated by the Committee or Board and any other significant issues related to the change, including the response of the incumbent auditors, and enquire as to the qualifications of the proposed auditors before making its recommendations to the Board.

 

4.25                        Review annually a report from the external auditors in respect of their internal quality-control procedures, any material issues raised by the most recent internal quality-control review, or peer review of the external auditors, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the external auditors, and any steps taken to deal with any such issues.

 

Associated Responsibilities

 

4.26                        Monitor and periodically review the whistleblower policy and associated procedures for:

 

a)                                the receipt, retention and treatment of complaints received by Largo regarding accounting, internal accounting controls or auditing matters;

 

b)                                the confidential, anonymous submission by directors, officers and employees of Largo of concerns regarding questionable accounting or auditing matters; and

 

c)                                 any violations of any applicable law, rule or regulation that relates to corporate reporting and disclosure, or violations of Largo’s Code of Business Conduct & Ethics or governance policies.

 

4.27                        Review and approve Largo’s hiring policies regarding employees and partners, and former employees and partners, of the present and former external auditor of Largo.

 

Non-Audit Services

 

4.28                        Pre-approve all non-audit services to be provided to Largo or any subsidiary entities by its external auditors or by the external auditors of such subsidiary entities. The Committee may delegate to one or more of its members the authority to pre-approve non-audit services but pre-approval by such member or members so delegated shall be presented to the full audit committee at its first scheduled meeting following such pre-approval.

 

Oversight Function

 

4.29                        While the Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Committee to plan or conduct audits or to determine that Largo’s financial statements are complete and accurate or are in accordance with IFRS and applicable rules and regulations. These are the responsibilities of Management and the external auditors. The Committee, the Chairperson and any Members identified as having accounting or related financial expertise are members of the Board, appointed to the Committee to provide broad oversight of the financial, risk and control related activities of Largo, and are specifically not accountable or responsible for the day to day operation or performance of such activities. Although the designation of a Member as having accounting or related financial expertise for disclosure purposes is based on that individual’s education and experience, which that individual will bring to bear in carrying out his or her duties on the Committee, such designation does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the Committee and Board in the absence of such designation. Rather, the role of a Member who is identified as

 

B-4

 

having accounting or related financial expertise, like the role of all Members, is to oversee the process, not to certify or guarantee the internal or external audit of Largo’s financial information or public disclosure.

 

5.                                      REPORTING

 

5.1                               The Chairperson will report to the Board at each Board meeting on the Committee’s activities since the last Board meeting. The Committee will annually review and approve the Committee’s report for inclusion in the management proxy circular. The Corporate Secretary will circulate the minutes of each meeting of the Committee to the members of the Board.

 

6.                                      ACCESS TO INFORMATION AND AUTHORITY

 

6.1                               The Committee will be granted unrestricted access to all information regarding Largo and all directors, officers and employees will be directed to cooperate as requested by members of the Committee. The Committee has the authority to retain, at Largo’s expense, independent legal, financial and other advisors, consultants and experts, to assist the Committee in fulfilling its duties and responsibilities. The Committee also has the authority to communicate directly with internal and external auditors.

 

7.                                      REVIEW OF CHARTER

 

7.1                               The Committee will annually review and assess the adequacy of this Charter and recommend any proposed changes to the Board for consideration.

 

B-5

Exhibit 99.68

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

FOR THE YEAR ENDED DECEMBER 31, 2020

 

 

TABLE OF CONTENTS

 

To Our Shareholders

1

 

 

The Company

1

 

 

2020 Highlights

1

 

 

Significant Events and Transactions Subsequent To 2020

2

 

 

2020 Summary

3

 

 

Selected Quarterly Information

8

 

 

Operations

9

 

 

Financial Instruments

15

 

 

Liquidity And Capital Resources

15

 

 

Outstanding Share Data

17

 

 

Transactions With Related Parties

17

 

 

Commitments And Contingencies

17

 

 

Disclosure Controls And Procedures And Internal Controls Over Financial Reporting

18

 

 

Significant Accounting Judgments, Estimates And Assumptions

19

 

 

Changes In Accounting Policies

19

 

 

Non-GAAP Measures

19

 

 

Risks And Uncertainties

22

 

 

Cautionary Statement Regarding Forward-Looking Information

23

 

 

TO OUR SHAREHOLDERS

 

The following Management’s Discussion and Analysis (“MD&A”) relates to the financial condition and results of operations of Largo Resources Ltd. (“we”, “our”, “us”, “Largo”, or the “Company”) for the year ended December 31, 2020 (“2020”) and should be read in conjunction with the annual consolidated financial statements and related notes for the same period. References in the below discussion refer to the note disclosures contained in the annual consolidated financial statements for the years ended December 31, 2020 and 2019 (“2020 annual consolidated financial statements”). References in the below discussion to “Q4 2020” and “Q4 2019” refer to the three months ended December 31, 2020 and December 31, 2019 and references to “2019” refer to the year ended December 31, 2019.

 

The financial statements and related notes of Largo have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) applicable to a going concern. Certain non-GAAP measures are discussed in this MD&A, which are clearly disclosed as such. Additional information, including our press releases, has been filed electronically through the System for Electronic Document Analysis and Retrieval (“SEDAR”) and is available online under our profile at www.sedar.com.

 

This MD&A reports our activities through March 17, 2021, unless otherwise indicated. References to “date of this MD&A” mean March 17, 2021. Except as otherwise set out herein, all amounts expressed herein are in thousands of U.S. dollars, denominated by “$”. The Company’s shares, options, units and warrants are expressed in thousands. Prices are not expressed in thousands. References to the symbol “C$” mean the Canadian dollar and references to the symbol “R$” mean the Brazilian real.

 

Mr. Paul Sarjeant B.Sc. P.Geo., is a Qualified Person as defined under National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”) and has reviewed the technical information in the MD&A. Mr. Sarjeant is Manager, Geology of the Company. Refer to the Operations section of this MD&A for details of the Qualified Persons involved in reviewing the updated reserves and resources at the Company’s Maracás Menchen Mine.

 

THE COMPANY

 

Largo is a Canadian, industry preferred producer and supplier of high-quality vanadium. Largo can service multiple vanadium market applications with its unrivaled VPURE™ and VPURE+™ products, which are sourced from one of the world’s highest-grade vanadium deposits at the Company’s Maracás Menchen Mine located in Brazil. Largo is also focused on the advancement of renewable energy storage solutions through Largo Clean Energy and its VCHARGE± vanadium redox flow battery technology. Additionally, Largo has secondary vanadium, iron-vanadium and tungsten projects located in Brazil and Canada. The Company is organized and exists under the Business Corporations Act (Ontario) and its common shares are principally listed on the Toronto Stock Exchange (“TSX”) under the symbol “LGO”.

 

2020 HIGHLIGHTS

 

·                  The Company’s Maracás Menchen Mine produced a record 11,825 tonnes of vanadium pentoxide (“V2O5”) in 2020, including a new quarterly production record of 3,340 tonnes of V2O5 produced in Q4 2020. The global V2O5 recovery rate for 2020 was 81.5%, with 80.6% seen in Q4 2020.

 

·                  The Company recorded net income before tax of $7,723 for 2020 and net income of $6,761 after the recognition of an income tax expense of $139 and a deferred income tax expense of $823.

 

·                  The Company’s cash balance at December 31, 2020 was $79,145.

 

·                  In March 2020, the Company secured two credit facilities in Brazil, for a total of $24,788. These facilities were fully drawn down and were due for repayment as a lump sum, together with accrued interest, in March 2021. In February 2021, the Company completed the settlement of the outstanding credit facilities through the repayment in full of the outstanding principal amount of $24,788.

 

·                  Following the election by the Company in 2019, the Company’s off-take agreement with its former off-take partner expired at the end of April 2020. In connection with this and with the Company managing its own sales

 

Management’s Discussion and Analysis for the Year Ended December 31, 2020

 

1

 

activities from May 1, 2020 onwards, the Company and a number of its subsidiaries are generating U.S. dollar denominated revenues and incurring U.S. dollar denominated costs. Considering the significance of these revenues and costs, the Company has determined that the currency of the primary economic environment in which some of its entities operate changed to the U.S. dollar on May 1, 2020. In addition, the Company changed its presentation currency from the Canadian dollar to the U.S. dollar (refer to note 3).

 

·                  The Company completed its first independent shipment of vanadium from Brazil on May 14, 2020.

 

·                  On July 20, 2020, the Company announced the release of its 2019 sustainability report, highlighted by new performance metrics and reporting standards. This report is guided in part by SASB, the Sustainability Accounting Standards Board.

 

·                  On December 7, 2020, the Company completed the acquisition of certain intellectual property through an asset purchase agreement, with the Company issuing 2,518 common shares and 3,622 common share purchase warrants as consideration (refer to note 8). In connection with this, the Company announced the launch of Largo Clean Energy, a vertically integrated vanadium redox flow battery (“VRFB”) business.

 

·                  The Company is conscious of the rapid expansion of the COVID-19 pandemic and the evolving global implications. To date, there have been no significant disruptions to the Company’s operations, supply chain or on its shipment of products from the Maracás Menchen Mine. However, the Company cautions that the potential future impact of any restrictions on the Company’s operations, supply chain, sales efforts and logistics is currently unknown but could be significant.

 

SIGNIFICANT EVENTS AND TRANSACTIONS SUBSEQUENT TO 2020

 

·                  The Company’s planned upgrades to the kiln and improvements in the cooler were completed in January 2021, with the start-up and commissioning period for the new equipment occurring in early February 2021. It is anticipated that these upgrades and improvements will increase the nameplate production capacity to 1,100 tonnes of V2O5 per month by the end of Q2 2021.

 

·                  On February 3, 2021, the Company completed the settlement of the outstanding credit facilities through the repayment in full of the outstanding principal amount of $24,788. Interest of $891 and a break fee of $74 were also paid as part of the settlement.

 

·                  Subsequent to December 31, 2020, and prior to the share consolidation, 56,912 warrants were exercised resulting in proceeds to the Company of $3,017, with a further 8,092 warrants surrendered as part of cashless exercises. Included in this were exercises of 54,586 warrants by the ARC Funds for 46,497 shares, including 8,089 warrants surrendered as part of this cashless exercise.

 

·                  On January 14, 2021 the Company announced that it will hold a Special Meeting of Shareholders (the “Special Meeting”) on March 1, 2021 to seek authorization from the Company’s shareholders to enable the Board of Directors to consider a consolidation of the Company’s issued and outstanding common shares at a ratio of up to one post-consolidation share for every ten pre-consolidation shares. Concurrent with the Special Meeting and related to the proposed share consolidation, the Company’s Board of Directors is also considering a potential listing of the Company’s shares in the United States (the “U.S.”) with the view of increasing access to U.S. capital markets. On March 1, 2021, the consolidation of the Company’s issued and outstanding common shares was approved by the Company’s shareholders at the Special Meeting.

 

·                  On March 4, 2021, the Company completed the consolidation of its common shares on the basis of one post-consolidation common share for every 10 pre-consolidation common shares. This also includes RSUs, stock options and warrants of the Company. Any quantity relating to these instruments for 2020 and 2019 and up to March 4, 2021 or any per unit price such as exercise prices disclosed throughout this MD&A have not been retrospectively adjusted for the share consolidation except for the weighted average number of shares outstanding used in the calculation of basic and diluted earnings (loss) per share, which have been retrospectively adjusted to give effect to the share consolidation as required by IAS 33, Earnings per share. Consequently, the basic and diluted earnings (loss) per share for the periods presented have been retrospectively adjusted. The effect of the share consolidation on the issued and outstanding number of common shares, RSUs, stock options and warrants at December 31, 2020 is shown in note 25.

 

2

 

·                  On March 15, 2021, the Company announced that it had completed the first sale of iron ore from the Maracás Menchen Mine. The Company finalized a sales contract for 14,000 tonnes of iron ore to a leading steel producer on March 12, 2021. Transport of the contracted material has commenced, and full delivery is expected by the end of March 2021.

 

·                  On March 17, 2021, the Company announced the appointment of Mr. Ian Robertson to its Board of Directors.

 

2020 SUMMARY

 

Financial

 

 

 

Year ended

 

 

 

 

 

 

 

December 31,
2020

 

December 31,
2019

 

Movement

 

Revenues

 

$

119,987

 

$

105,107

 

$

14,880

 

14

%

Other gains (losses)

 

1,636

 

(1,360

)

2,996

 

(220

)%

 

 

121,623

 

103,747

 

17,876

 

17

%

Operating costs

 

(88,390

)

(92,950

)

4,560

 

(5

)%

Direct mine and production costs

 

(48,929

)

(63,156

)

14,227

 

(23

)%

Professional, consulting and management fees

 

(8,255

)

(9,979

)

1,724

 

(17

)%

Foreign exchange loss

 

(9,064

)

(6,011

)

(3,053

)

51

%

Other general and administrative expenses

 

(3,329

)

(3,184

)

(145

)

5

%

Share-based payments

 

(1,638

)

(3,554

)

1,916

 

(54

)%

Finance costs

 

(1,350

)

(13,692

)

12,342

 

(90

)%

Interest income

 

1,148

 

4,913

 

(3,765

)

(77

)%

Exploration and evaluation costs

 

(3,022

)

(2,784

)

(238

)

9

%

 

 

(113,900

)

(127,241

)

13,341

 

(10

)%

Net income before tax

 

$

7,723

 

$

(23,494

)

$

31,217

 

(133

)%

Income tax (expense)

 

(139

)

(864

)

725

 

(84

)%

Deferred income tax (expense)

 

(823

)

(2,612

)

1,789

 

(68

)%

Net income (loss)

 

$

6,761

 

$

(26,970

)

$

33,731

 

(125

)%

 

 

 

 

 

 

 

 

 

 

Unrealized loss on foreign currency translation

 

(41,937

)

(2,867

)

(39,070

)

1,363

%

Comprehensive (loss)

 

$

(35,176

)

$

(29,837

)

$

(5,339

)

18

%

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share (note 16)

 

$

0.12

 

$

(0.50

)

$

0.62

 

(124

)%

Diluted earnings (loss) per share (note 16)

 

$

0.11

 

$

(0.50

)

$

0.61

 

(122

)%

 

 

 

 

 

 

 

 

 

 

Cash provided before working capital items

 

$

12,065

 

$

21,627

 

$

(9,562

)

(44

)%

Net cash (used in) provided by operating activities

 

(59,508

)

104,597

 

(164,105

)

(157

)%

Net cash provided by (used in) financing activities

 

30,232

 

(85,310

)

115,542

 

(135

)%

Net cash (used in) investing activities

 

(18,106

)

(37,948

)

19,842

 

(52

)%

Net change in cash

 

$

(48,354

)

$

(23,889

)

$

(24,465

)

102

%

 

3

 

 

 

Three months ended

 

 

 

 

 

 

 

December 31,
2020

 

December 31,
2019

 

Movement

 

Revenues

 

$

42,254

 

$

25,808

 

$

16,446

 

64

%

Other gains (losses)

 

—

 

(1,927

)

1,927

 

(100

)%

 

 

42,254

 

23,881

 

18,373

 

77

%

Operating costs

 

(31,604

)

(22,679

)

(8,925

)

39

%

Direct mine and production costs

 

(18,547

)

(15,098

)

(3,449

)

23

%

Professional, consulting and management fees

 

(3,229

)

(2,703

)

(526

)

19

%

Foreign exchange gain (loss)

 

2,572

 

178

 

2,394

 

1,345

%

Other general and administrative expenses

 

(1,027

)

(876

)

(151

)

17

%

Share-based payments

 

(450

)

(536

)

86

 

(16

)%

Finance costs

 

(380

)

(39

)

(341

)

874

%

Interest income

 

66

 

807

 

(741

)

(92

)%

Exploration and evaluation costs

 

(2,179

)

(559

)

(1,620

)

290

%

 

 

(36,231

)

(26,407

)

(9,824

)

37

%

Net income (loss) before tax

 

$

6,023

 

$

(2,526

)

$

8,549

 

(338

)%

Income tax recovery (expense)

 

282

 

(856

)

1,138

 

(133

)%

Deferred income tax recovery (expense)

 

576

 

(922

)

1,498

 

(162

)%

Net income (loss)

 

$

6,881

 

$

(4,304

)

$

11,185

 

(260

)%

 

 

 

 

 

 

 

 

 

 

Unrealized gain on foreign currency translation

 

10,112

 

8,437

 

1,675

 

20

%

Comprehensive income

 

$

16,993

 

$

4,133

 

$

12,860

 

311

%

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share

 

$

0.12

 

$

(0.08

)

$

0.20

 

(250

)%

Diluted earnings (loss) per share

 

$

0.11

 

$

(0.08

)

$

0.19

 

(238

)%

 

 

 

 

 

 

 

 

 

 

Cash provided before working capital items

 

$

7,539

 

$

13,739

 

$

(6,200

)

(45

)%

Net cash provided by operating activities

 

4,741

 

9,350

 

(4,609

)

(49

)%

Net cash provided by financing activities

 

2,589

 

9,250

 

(6,661

)

(72

)%

Net cash (used in) investing activities

 

(5,070

)

(5,697

)

627

 

(11

)%

Net change in cash

 

$

4,250

 

$

10,725

 

$

(6,475

)

(60

)%

 

The movements in the discussion below refer to those shown in the previous tables.

 

·                  The Company recorded net income of $6,761 in 2020, compared with a net loss of $26,970 in 2019. This movement was primarily due to a 14% increase in revenues, a 5% decrease in operating costs, a 17% decrease in professional, consulting and management fees, a 54% decrease in share-based payments and a 90% decrease in finance costs. This was partially offset by a 77% decrease in interest income and a 9% increase in exploration and evaluation costs. For Q4 2020, the Company recorded net income of $6,881, compared with a net loss of $4,304 for Q4 2019. This movement was primarily attributable to a 64% increase in revenues and a 16% decrease in share-based payments, partially offset by a 39% increase in operating costs, a 19% increase in professional, consulting and management fees, an 874% increase in finance costs and a 290% increase in exploration and evaluation costs.

 

Sales and Trading

 

·                  For 2020, the Company exceeded its annual sales guidance of 9,500 to 10,000 tonnes of V2O5 equivalent with total sales of 10,254 tonnes of V2O5 equivalent.

 

·                  In Q4 2020, the Company achieved a record quarterly sales level of 3,746 tonnes of V2O5 equivalent sold. The Company delivered both standard grade and high purity V2O5 as well as ferrovanadium (“FeV”) to customers globally.

 

4

 

·                  Following the logistics constraints experienced in Q3 2020, delays in deliveries to customers in Asia eased during Q4 2020. The Company continues to actively manage any logistics challenges it faces to provide premium products and service to its customers.

 

·                  During Q4 2020, the average price per lb of V2O5 in Europe increased by 1%, ending the period with an average price of approximately $5.40, compared with approximately $5.35 at September 30, 2020 and $5.33 at December 31, 2019. The average price per lb of V2O5 for Q4 2020 was approximately $5.29, compared with approximately $5.37 for Q4 2019. The Company is now selling products with pricing based on several different V2O5 and FeV benchmarks. The Company’s revenues will be driven by the movements in these prices.

 

·                  The Company successfully completed its sales contract campaign and has allocated a significant proportion of its estimated monthly production in 2021 to these contracts. Geographically, these contracts are well diversified with a well-balanced global footprint. The Company maintains a strong focus on developing new markets for its high purity products, including chemical applications and an expected gradual recovery of the aerospace industry beginning in Q2 2021. With the launch of Largo Clean Energy, the Company also aims to grow its sales into the fast growing VRFB market.

 

·                  During 2020, the Company recognized revenues of $119,987 (2019 - $105,107) from sales of 10,254 tonnes of V2O5 equivalent. Of the total revenues, $64,512 is related to the Sales & trading segment and $55,475 is related to the Mine properties segment (after the elimination of inter-segment transactions).

 

·                  During Q4 2020, the Company recognized revenues of $42,254 (Q4 2019 — $25,808) from sales of 3,746 tonnes of V2O5 equivalent. Of the total revenues, $37,833 is related to the Sales & trading segment and $4,421 is related to the Mine properties segment (after the elimination of inter-segment transactions).

 

 

 

Three months ended

 

Year ended

 

 

 

December 31,
2020

 

December 31,
2019

 

December 31,
2020

 

December 31,
2019

 

Revenues per pound sold(1), (2)

 

$

5.12

 

$

4.09

 

$

5.31

 

$

4.69

 

 

(1)    The revenues per pound reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this MD&A.

(2)    Revenues per pound sold are calculated based on the quantity of V2O5 sold during the stated period.

 

·                  In connection with the expiry of the Company’s off-take agreement and with the Company managing its own sales activities from May 1, 2020 onwards, the Company’s vanadium products (note 7) are accounted for as finished products inventory (note 6) effective from May 1, 2020. Prior to this, the Company recognized other gains (losses) of $1,636 for 2020 (Q4 2019 and 2019 — $(1,927) and $(1,360)), relating to realized and unrealized gains and losses on the purchases and sales of vanadium products.

 

Costs

 

·                  Operating costs of $31,604 in Q4 2020 (Q4 2019 — $22,679) include direct mine and production costs of $18,547 (Q4 2019 — $15,098), conversion costs of $1,330 (Q4 2019 — $nil), product acquisition costs of $2,965 (Q4 2019 — $nil), royalties of $1,958 (Q4 2019 — $1,496), distribution costs of $1,029 (Q4 2019 — $nil), inventory write-down of $47 (Q4 2019 — $nil) and depreciation and amortization of $5,728 (Q4 2019 — $6,085). The increase in direct mine and production costs is primarily attributable to the increase in sales, with 3,746 tonnes of V2O5 equivalent sold in Q4 2020 (Q4 2019 — 2,860 tonnes). Of the total, $26,676 is related to the Sales & trading segment and $4,928 is related to the Mine properties segment (after the elimination of inter-segment transactions).

 

·                  For 2020, operating costs of $88,390 (2019 — $92,950) include direct mine and production costs of $48,929 (2019 — $63,156), conversion costs of $1,976 (2019 — $nil), product acquisition costs of $10,459 (2019 — $nil), royalties of $7,107 (2019 — $5,947), distribution costs of $2,269 (2019 — $nil), inventory write-down of $177 (2019 — $nil) and depreciation and amortization of $17,473 (2019 — $23,847). Of the total, $47,609 is related to the Sales & trading segment and $40,781 is related to the Mine properties segment (after the elimination of inter-segment transactions).

 

5

 

·                  Cash operating costs excluding royalties per pound(1), which are now calculated on pounds sold, were $2.56 per lb in 2020, compared with $3.06 for 2019. The decrease seen in 2020 compared with 2019 is largely due to a decrease in direct mine and production costs, which is primarily attributable to the lower costs recognized in Q2 2020 when the Company was ramping up its sales activities and cost reductions realized as a result of the expansion completed in 2019. Total cash costs(2) exclude royalties and include the Company’s total professional, consulting and management fees and other general and administrative expenses and is calculated on total pounds of V2O5 sold. For 2020, total cash costs(2) were $3.34.

 

 

 

Three months ended

 

Year ended

 

 

 

December 31,
2020

 

December 31,
2019(2)

 

December 31,
2020

 

December 31,
2019(2)

 

Cash operating costs per pound(1)

 

$

2.81

 

$

2.84

 

$

2.90

 

$

3.32

 

 

 

 

 

 

 

 

 

 

 

Cash operating costs excluding royalties per pound(1)

 

$

2.56

 

$

2.60

 

$

2.56

 

$

3.06

 

 

 

 

 

 

 

 

 

 

 

Total cash costs(1)

 

$

3.41

 

 

 

$

3.34

 

 

 

 

(1)    The cash operating costs per pound, cash operating costs excluding royalties per pound and total cash costs reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this MD&A.

(2)    Cash operating costs per pound and cash operating costs excluding royalties per pound for this period were calculated on a pounds produced basis. Effective Q1 2020, they are calculated on a pounds sold by basis. The amounts presented here are restated on a pounds sold basis. Refer to the “Non-GAAP Measures” section of this MD&A.

 

·                  Professional, consulting and management fees in Q4 2020 increased from Q4 2019 by 19%. The increase is primarily attributable to costs incurred in Q4 2020 in connection with the Company’s Sales & trading segment, which was not yet operational in Q4 2019. Of the total professional, consulting and management fee expense in Q4 2020, $476 related to the Sales & trading segment (Q4 2019 — $nil), $963 related to the Mine properties segment (Q4 2019 — $1,045) and $1,083 related to Corporate (Q4 2019 — $1,658). For 2020, total professional, consulting and management fees decreased from 2019 by 17%. Of the total, $1,274 related to the Sales & trading segment (2019 — $nil), $3,086 related to the Mine properties segment (2019 — $4,513) and $3,188 related to Corporate (2019 — $5,466).

 

·                  The foreign exchange gain in Q4 2020 increased by 1,345% or $2,394. For 2020, the foreign exchange loss increased by 51% as compared with 2019. This is primarily attributable to a weakening of the U.S. dollar against the Brazilian real by approximately 8% since September 30, 2020 (strengthening by approximately 29% since December 31, 2019) on U.S. dollar denominated cash and liabilities in Brazil and a strengthening of the Canadian dollar against the U.S. dollar by approximately 5% since September 30, 2020 on Canadian dollar denominated assets (strengthening of approximately 2% since December 31, 2019). Of the total foreign exchange gain in Q4 2020, $27 related to the Sales & trading segment (Q4 2019 — $nil), $1,826 related to the Mine properties segment (Q4 2019 —$2,769) and $719 related to Corporate (Q4 2019 — loss of $2,591). For 2020, a gain of $44 related to the Sales & trading segment (2019 — $nil), a loss of $15,943 related to the Mine properties segment (2019 — $1,551) and a gain of $6,835 related to Corporate (2019 — loss of $4,460).

 

·                  Finance costs in Q4 2020 increased from Q4 2019 by 874% or $341. The increase is primarily attributable to interest expense on the debt in Q4 2020 following the draw-down of the facilities in Q1 2020. The redemption of Notes was completed by July 8, 2019 (refer to note 12) with minimal finance costs in Q4 2019. Of the total in Q4 2020, $7 related to the Sales & trading segment (Q4 2019 — $nil), $370 related to the Mine properties segment (Q4 2019 — $34) and $3 related to Corporate (Q4 2019 — $5). For 2020, finance costs decreased from 2019 by 90%, with $17 related to the Sales & trading segment (2019 — $nil), $1,325 related to the Mine properties segment (2019 — $211) and $8 related to Corporate (2019 — $13,481).

 

·                  Interest income in Q4 2020 decreased from Q4 2019 by 92%. The decrease is primarily due to lower deposit interest rates in Q4 2020 as compared with Q4 2019. Of the total in Q4 2020, $29 related to the Mine properties segment (Q4 2019 — $352) and $37 related to Corporate (Q4 2019 — $455). For 2020, interest income decreased

 

(1)  The cash operating costs per pound, cash operating costs excluding royalties per pound and total cash costs reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this MD&A.

 

6

 

from 2019 by 77%, with $601 related to the Mine properties segment (2019 — $3,278) and $547 related to Corporate (2019 — $1,635).

 

·                  Exploration and evaluation costs in Q4 2020 increased from Q4 2019 by 290%. For 2020, the increase from 2019 was 9%. These increases are a result of a catch up in exploration activities following previous delays to the Company’s 2020 drilling program caused by the COVID-19 pandemic and the larger overall exploration program in 2020 as compared with 2019.

 

·                  Comprehensive income for Q4 2020 increased from Q4 2019 by 311% after an increase in the unrealized gain on foreign currency translation of 20%. For 2020, comprehensive loss increased from 2019 by 18% after an increase in the unrealized loss on foreign currency translation of 1,363%. The unrealized loss on foreign currency translation in 2020 is primarily due to a weakening of the Brazilian real against the U.S. dollar by approximately 29% since December 31, 2019.

 

Cash Flows

 

·                  Cash provided by operating activities decreased from $9,350 in Q4 2019 to $4,741 in Q4 2020. This is primarily due to a decrease in cash provided before working capital items of $6,200 and a net increase in working capital items of $1,591. For 2020, cash used in operating activities was $59,508, compared with cash provided by operating activities of $104,597 in 2019. This movement is primarily attributable to a decrease in cash provided before working capital items of $9,562 and a net decrease in working capital items of $154,543, which is largely driven by movements in amounts receivable and accounts payable and accrued liabilities. The change in amounts receivable is primarily due to the increased payment terms with the Company’s customers in 2020 as compared with 2019.

 

·                  Cash provided by financing activities in Q4 2020 decreased Q4 2019 by $6,661. The movement is primarily due to a decrease in cash received from the issuance of common shares. For 2020, cash provided by financing activities changed from cash used in 2019 by $115,542. The movement is primarily attributable to the receipt of debt of $24,788 (2019 — $nil), repayment of debt of $nil (2019 — $92,812), interest received of $1,135 (2019 — $4,917) and cash received from the issuance of common shares of $4,233 (2019 — $9,977).

 

·                  Cash used in investing activities in Q4 2020 of $5,070 is largely consistent with the $5,697 seen in Q4 2019. For 2020, the decrease from 2019 was $19,842 and primarily due to the expansion project being undertaken in 2019.

 

·                  The net change in cash in Q4 2020 was an increase of $4,250, compared with $10,725 for Q4 2019.  For 2020, the net change in cash was a decrease of $48,354, compared with $23,889 in 2019.

 

Operations

 

·                  Production quantities and non-GAAP unit cost measures(1) are summarized in the following table:

 

 

 

Production

 

Production
Pounds

 

Average Quarterly
V2O5 price

 

Cash operating costs
excluding royalties(1)

 

Total cash
costs(1)

 

Period

 

Tonnes

 

Equivalent(2)

 

$/lb

 

$/lb(3)

 

$/lb(3)

 

Q4 2020

 

3,340

 

7,363,431

 

$

5.29

 

$

2.56

 

$

3.41

 

Q3 2020

 

3,092

 

6,816,685

 

$

5.33

 

$

3.14

 

$

3.69

 

Q2 2020

 

2,562

 

5,648,236

 

$

6.14

 

$

1.89

(5)

$

3.68

(5)

Q1 2020

 

2,831

 

6,241,279

 

$

6.07

 

$

2.79

 

$

3.01

 

Q4 2019(4)

 

3,011

 

6,638,111

 

$

5.37

 

$

2.60

 

 

 

Q3 2019(4)

 

2,952

 

6,508,038

 

$

7.16

 

$

3.02

 

 

 

Q2 2019(4)

 

2,515

 

5,544,619

 

$

8.59

 

$

3.34

 

 

 

Q1 2019(4)

 

2,099

 

4,627,497

 

$

16.34

 

$

3.41

 

 

 

 

(1)         The cash operating costs excluding royalties per pound and total cash costs reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this MD&A.

(2)         Conversion of tonnes to pounds, 1 tonne = 2,204.62 pounds or lbs.

(3)         For periods prior to Q2 2020, calculated from C$ using average C$/$ foreign exchange rates of 1.32, 1.32, 1.32, 1.34, 1.33 and 1.32 for Q1 2020, Q4 2019, Q3 2019, Q2 2019, Q1 2019 and Q4 2018, respectively.

(4)         Q4 2019, Q3 2019, Q2 2019 and Q1 2019 have been calculated and presented on a pounds sold basis. Refer to the “Non-GAAP Measures” section of this MD&A.

(5)         The measure for Q2 2020 includes the benefit of tax credits of $2,187, without which the cash operating costs excluding royalties per pound would be $3.04 and total cash costs would be $4.66.

 

7

 

·                  2020 production of 11,825 tonnes of V2O5 (26.1 million lbs) marked a new annual record for the Company and within the 2020 guidance of 11,750 to 12,250 tonnes of V2O5. This represents an increase of 12% over 2019. The global recovery of 81.5% achieved in 2020 is 4% higher than that achieved in 2019.

 

·                  Q4 2020 production of 3,340 tonnes of V2O5 was a new quarterly production record, being 11% higher than Q4 2019 and 8% higher than the previous record of 3,092 tonnes in Q3 2020.  V2O5 production in October 2020 was 1,119 tonnes, with 1,057 tonnes produced in November 2020 and 1,164 tonnes produced in December 2020.

 

·                  The global recovery achieved in Q4 2020 was 80.6%, 4% higher than the 77.3% achieved in Q4 2019 and 4% lower than the 84.2% achieved in Q3 2020. The global recovery in October 2020 was 79.8%, with 78.6% achieved in November and 82.9% achieved in December.

 

·                  Subsequent to 2020, production in January 2021 was 382 tonnes of V2O5, and production in February 2021 was 769 tonnes of V2O5. The decrease in production levels seen is due to the planned shutdown to implement upgrades to the kiln and improvements in the cooler. It is anticipated that these upgrades and improvements will increase the nameplate production capacity to 1,100 tonnes of V2O5 per month by the end of Q2 2021.

 

SELECTED QUARTERLY INFORMATION

 

Summary financial information for the eight quarters ended December 31, 2020, prepared in accordance with IFRS (in U.S. dollars):

 

Period

 

Revenue

 

Net
Income (Loss)

 

Basic Earnings
(Loss) per Share(1)

 

Total Assets

 

Non-current
Liabilities

 

Q4 2020

 

$

42,254

 

$

6,881

 

$

0.12

 

$

297,806

 

$

6,295

 

Q3 2020

 

27,474

 

2,549

 

0.05

 

272,099

 

5,857

 

Q2 2020

 

8,350

 

(7,012

)

(0.12

)

268,874

 

5,893

 

Q1 2020

 

41,909

 

4,343

 

0.07

 

325,336

 

6,163

 

Q4 2019

 

25,808

 

(4,304

)

(0.08

)

357,661

 

7,342

 

Q3 2019

 

24,131

 

(5,949

)

(0.11

)

338,467

 

6,961

 

Q2 2019

 

21,963

 

(15,298

)

(0.29

)

377,678

 

7,368

 

Q1 2019

 

33,205

 

(1,419

)

(0.02

)

359,164

 

6,706

 

 

(1)         Basic earnings (loss) per share has been adjusted in order to reflect the effect of the share consolidation that was approved on March 1, 2021 and completed on March 4, 2021 (refer to note 25).

 

The Company’s asset base has fluctuated over the last eight quarters ended December 31, 2020, with the high in Q2 2019 primarily attributable to cash and mine properties, plant and equipment.

 

During Q4 2020, the Company recognized revenues of $42,254, which was offset by operating costs of $31,604, finance costs of $380 and a total tax recovery of $858.

 

During Q3 2020, the Company recognized revenues of $27,474, which was offset by operating costs of $20,977, finance costs of $368 and a total tax expense of $803.

 

During Q2 2020, the Company recognized revenues of $8,350, which was offset by operating costs of $9,561, finance costs of $476 and a total tax expense of $1,479.

 

During Q1 2020, the Company recognized revenues of $41,909, which was offset by operating costs of $26,248, finance costs of $126 and a total tax recovery of $462.

 

During Q4 2019, the Company recognized revenues of $25,808, which was offset by operating costs of $22,679, finance costs of $39 and a total tax expense of $1,778.

 

During Q3 2019, the Company recognized revenues of $24,131, which was offset by operating costs of $23,673, finance costs of $44 and a total tax recovery of $903.

 

During Q2 2019, the Company recognized revenues of $21,963, which was offset by operating costs of $24,815, finance costs of $8,133 and a total tax expense of $166.

 

During Q1 2019, the Company recognized revenues of $33,205, which was offset by operating costs of $21,783, finance costs of $5,476 and a total tax expense of $2,435.

 

8

 

OPERATIONS

 

Maracás Menchen Mine

 

Recent Developments

 

Expenditures of $19,759 were capitalized to mine properties, plant and equipment during 2020 (2019 — $41,588), including $8,512 of capitalized waste stripping and push back costs (2019 — $7,484).

 

The following table is a summary of production statistics at the Maracás Menchen Mine.

 

 

 

Q4 2020

 

Q4 2019

 

2020

 

2019

 

Total Ore Mined (tonnes)

 

338,226

 

329,792

 

1,087,518

 

1,156,016

 

Ore Grade Mined - Effective Grade(1) (%)

 

1.18

 

1.36

 

1.29

 

1.34

 

 

 

 

 

 

 

 

 

 

 

Effective Grade of Ore Milled (%)

 

1.28

 

1.57

 

1.34

 

1.50

 

Concentrate Produced (tonnes)

 

108,609

 

100,879

 

412,661

 

382,501

 

Grade of Concentrate (%)

 

3.24

 

3.28

 

3.28

 

3.29

 

Contained V2O5 (tonnes)

 

3,515

 

3,310

 

13,540

 

12,580

 

 

 

 

 

 

 

 

 

 

 

Crushing Recovery (%)

 

98.1

 

96.6

 

98.1

 

97.0

 

Milling Recovery (%)

 

95.4

 

96.0

 

96.2

 

96.9

 

Kiln Recovery (%)

 

91.2

 

89.7

 

91.0

 

89.1

 

Leaching Recovery (%)

 

98.5

 

96.7

 

98.6

 

96.8

 

Chemical Plant Recovery (%)

 

95.8

 

96.1

 

96.3

 

96.8

 

Global Recovery (%)(2)

 

80.6

 

77.3

 

81.5

 

78.5

 

 

 

 

 

 

 

 

 

 

 

V2O5 Produced (Flake + Powder) (tonnes)

 

3,340

 

3,011

 

11,825

 

10,577

 

 

(1)         Effective grade represents the percentage of magnetic material mined multiplied by the percentage of V2O5 in the magnetic concentrate.

(2)         Global recovery is the product of crushing recovery, milling recovery, kiln recovery, leaching recovery and chemical plant recovery.

 

The production of 3,340 tonnes of V2O5 in Q4 2020 was 11% higher than the 3,011 tonnes of V2O5 produced in Q4 2019. This increase is attributable to the operational stability and strong performance in all areas of the plant.

 

The Q4 2020 global recovery of 80.6% was higher than Q4 2019. The global recovery of 81.5% achieved for 2020 was attributable to the strong performance in all areas of the plant throughout the year, with the crushing, kiln and leaching areas performing ahead of the levels seen in 2019.

 

In Q4 2020, 338,226 tonnes of ore were mined with an effective grade of 1.18% of V2O5. The ore mined in Q4 2020 was 3% higher than in Q4 2019 and 17% higher than in Q3 2020. The Company produced 108,609 tonnes of concentrate with an effective grade of 3.24%. The contained V2O5 in the concentrate produced was 8% higher in 2020 than in 2019. The operational performance in Q4 2020 remained in-line with the Company’s plans despite the COVID-19 restrictions put in place.

 

As a consequence of the necessary precautions implemented in response to the COVID-19 pandemic, the planned upgrades to the kiln and improvements in the cooler were postponed to January 2021. Even without this work being completed in 2020, the production performance remained in-line with the Company’s plans and guidance. The strong operational performance was supported by the increase in global recovery and overall operational stability.

 

9

 

2021 Guidance

 

The Company has committed a significant proportion of its monthly production in 2021 to sales contracts. The balance of the Company’s production will be targeted towards spot sales.

 

The Company has committed sales of its VPURE+TM and VPURETM products, as well as FeV produced from VPURETM. The Company is confident that its nascent but growing sales and trading division will add significant long-term value to the Company.

 

The Company’s Maracás Menchen Mine continued operations during 2020. The Company continues to monitor the evolving COVID-19 pandemic and has taken preventative measures at its mine site and corporate offices to mitigate potential risks. Although there have been some challenges with logistics, there continues to be no significant impact on the Company’s production or on the shipment of products out of Maracás. To date, there continues to be no significant disruption to the Company’s supply chain for its operations and the level of critical consumables continues to be at normal levels. In addition, the restrictions imposed by the government in Brazil have not significantly impacted operations. The Company continues to follow the recommendations provided by health authorities and all corporate office personnel have been instructed to work from home where possible. The Company continues to staff critical functions at the Maracás Menchen Mine and has encouraged those in non-essential roles to work from home.

 

The Company’s 2021 guidance is presented on a “business as usual” basis. The Company continues to monitor measures being imposed by governments globally to reduce the spread of COVID-19 and the impact that this may have on the Company’s operations, sales and guidance for 2021. Although these restrictions have not, to date, had a material impact on the Company’s operations and sales, the potential future impact of COVID-19 both in Brazil and globally could have a significant impact on the Company’s operations, sales efforts and logistics. The Company is continuing to monitor the rapidly developing impacts of the COVID-19 pandemic and will take all possible actions to help minimize the impact on the Company and its people. However, these actions may significantly change the guidance and forecasts presented and will, if and when necessary, update its guidance accordingly.

 

The Company is evaluating the timing for the construction of the FeV conversion plant, including the deferral of planned capital expenditures. This deferral will not impact the Company’s commercial strategy in 2021. The Company is proceeding with its previously announced vanadium trioxide (“V2O3”) project, with 2021 capital expenditures estimated to be in the range of $7,000 to $9,000. Refer to the Company’s Annual Information Form for the year ended December 31, 2020 for the full discussion of the Company’s Risks and Uncertainties, including those relating to the COVID-19 pandemic.

 

The Company has revised its 2021 guidance for cash operating costs excluding royalties(1) and total cash costs(1).  The revised guidance is presented below.

 

 

 

 

 

2020 Guidance

 

Annual V2O5 equivalent production

 

tonnes

 

12,000 — 12,500

 

Annual V2O5 equivalent sales

 

tonnes

 

12,250 — 12,750

 

 

 

 

 

 

 

Cash operating costs excluding royalties(1), (2)

 

$/lb

 

3.10 — 3.30

 

Total cash costs(1), (2)

 

$/lb

 

3.50 — 3.70

 

 

 

 

 

 

 

V2O3 processing plant capital expenditures

 

$

 

 

7,000 — 9,000

 

 

 

 

 

 

 

Sustaining capital expenditures (excluding capitalized stripping costs)

 

$

 

 

8,000 — 10,000

 

 

(1)         The cash operating costs excluding royalties and total cash costs reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this MD&A.

(2)         These measures exclude royalties.

 

10

 

Reserves and Resources

 

On October 16, 2017, the Company disclosed mineral reserve and mineral resource estimates with an effective date of May 2, 2017 in a report titled Maracás Menchen Project, Bahia, Brazil An Updated Mine Plan, Mineral Reserve and Preliminary Economic Assessment of the Inferred Resources (the “Technical Report”), prepared by GE21 Consultoria Mineral Ltda (“GE21”).

 

The Mineral Resources for the Campbell deposit are estimated from diamond drill core information stored in a secured central database and were evaluated using a geostatistical block modelling approach. A three-dimensional block model was generated to enable grade estimation. The selected block size was based on the geometry of the domain interpretation and the data configuration. The block size of 5 m E by 5 m N by 5 m RL was selected. The “percent” block modelling technique was used to represent the volume of the interpreted wireframe models. Sufficient variables were included in the block model construction to enable grade estimation and reporting.

 

Resource estimation for the Campbell deposit was undertaken using ordinary kriging (“OK”) as the principal estimation methodology for V2O5. The OK estimates were completed using Gemcom mining software. In 2016, Largo updated mineral resource estimate for the Campbell deposit as a result of depletion of mined resources. This Measured and Indicated resource was used to update the reserve and used for the new mine plan presented in the Technical Report prepared by GE21.

 

The new block model incorporates percent magnetics (percent of magnetic minerals in the mineralized rock) and magnetite concentrate grade for V2O5 and silicon dioxide (“SiO2”). No new drilling was available for the estimate; however, it was adjusted for mining completed to date. The updated Mineral Resources for the Campbell deposit are presented below:

 

Campbell Mineral Resources — Maracás Menchen Mine

Effective date: May 2, 2017

 

Category

 

Tonnes
(million)

 

V2O5 head grade
(%)

 

V2O5 contained
(kt)

 

V2O5 in concentrate
(%)

 

Magnetics
(%)

 

Measured (M)

 

18.08

 

1.19

 

215.0

 

3.19

 

30.55

 

Indicated (I)

 

1.70

 

1.28

 

21.7

 

3.12

 

34.64

 

Total M&I

 

19.78

 

1.20

 

236.7

 

3.19

 

30.90

 

Inferred

 

1.65

 

1.20

 

19.8

 

3.10

 

33.08

 

 

Resources within a pit shell using $34.20/t all in operating cost and reported at a 0.45% V2O5 cut-off, reviewed and confirmed by Fabio Valério Xavier (GE21).

 

Mineral Reserves have been estimated for the Campbell deposit with an effective date of May 2, 2017. The mine plan developed in the Technical Report is based on Measured and Indicated resources only as delineated in the table above. Reserves are reported using a sales price of $6.34 per lb of V2O5. The ultimate pit design and mine plan was done to optimize kiln feed. The open pit Mineral Reserve estimate is based on a mine plan and open pit designs developed using modifying parameters including metal prices, metal recovery based on performance of the processing plant, operating and sustaining capital cost estimates based on the production schedule and equipment requirements. Other factors including; dilution, mining recovery, shipping terms, geotechnical characteristics of the rock mass, and the likelihood of obtaining land title, required permits environmental, social and legal licenses may affect the final Mineral Resources and Reserves.

 

The Mineral Reserves presented below were estimated by Porfírio Cabaleiro Rodriguez of GE21, who is a qualified person under NI 43-101 and a Member of the Australian Institute of Geoscientists.

 

11

 

Campbell Mineral Reserves – Maracás Menchen Mine

Block dimensions 5x5x5 (m) – Mine Recovery 100% and Dilution 5%

Effective date: May 2, 2017

 

Reserve Category

 

Tonnage
(kt)

 

V2O5 head grade
(%)

 

Magnetics
(%)

 

V2O5 in concentrate
(%)

 

Contained V2O5
(kt)

 

Proven

 

17,570

 

1.14

 

29.66

 

3.21

 

167.3

 

Probable

 

1,440

 

1.26

 

33.89

 

3.20

 

15.6

 

Total in pit Reserve

 

19,010

 

1.15

 

29.98

 

3.21

 

182.9

 

 

Notes to mineral reserve and mineral resource estimates:

1.              A probable mineral reserve is the economically mineable part of an indicated mineral resource, and in some circumstances, measured mineral resource.

2.              A proven mineral reserve is, in most common circumstances, the economically mineable part of a measured mineral resource.

3.              Mineral reserves are included in measured and indicated resources.

4.              The reference point at which mineral reserves are defined is the point where the ore is delivered from the open pit to the crushing plant.

5.              The mineral resource and mineral reserve estimates are reported in accordance with the National Instrument 43-101 — Standards of Disclosure for Mineral Projects (NI 43-101) and the CIM Definition Standards on Mineral Resources and Reserves (CIM Definition Standards) as a minimum standard.

 

The Company also completed a revised block model and updated mineral resource estimate for the Near Mine Targets incorporating the drilling from the 2011 program including 72 holes totalling 13,401 metres. The Near Mine Targets which extend north from Gulçari A for eight kilometres include from south to north: Gulçari A Norte, Gulçari B, São José, Novo Amparo and Novo Amparo Norte. All are hosted in the Rio Jacaré Intrusion.

 

The Mineral Resources presented in the following table are considered current (subject to the update for Novo Amparo Norte in the following “Recent Developments” section) and do not include any drill results from the 2018 or 2019 drill programs.

 

Satellite Deposits Mineral Resources

Effective date: May 2, 2017

 

Deposits

 

Category

 

Tonnes
(kt)

 

V2O5
(%)

 

Contained V2O5
(t)

 

Gulçari A Norte**

 

Inferred

 

9,730

 

0.84

 

81,388

 

Gulçari B**

 

Inferred

 

2,910

 

0.70

 

20,312

 

Novo Amparo**

 

Inferred

 

1,560

 

0.72

 

11,255

 

Novo Amparo Norte**

 

Inferred

 

9,720

 

0.87

 

84,453

 

São José**

 

Inferred

 

3,900

 

0.89

 

34,706

 

Satellite Deposits (Total)**

 

Inferred

 

27,820

 

0.83

 

232,114

 

 

** Resources within a pit shell using $34.20/t all in operating cost and reported at a 0.45% V2O5 cut-off, reviewed and confirmed by Porfírio Cabaleiro Rodriguez (GE21).

Notes to mineral reserve and mineral resource estimates:

1.              Mineral resources within a pit shell using $34.20/t all in operating cost and reported at a 0.45% V2O5 cut-off, reviewed and confirmed by Fabio Valério Xavier (GE21).

2.              Mineral resources are classified as measured, indicated and inferred based on relative levels of confidence in their estimation and on technical and economic parameters consistent with the methods most suitable to their potential commercial exploitation.

3.              The mineral resource and mineral reserve estimates are reported in accordance with the National Instrument 43-101 — Standards of Disclosure for Mineral Projects (NI 43-101) and the CIM Definition Standards on Mineral Resources and Reserves (CIM Definition Standards) as a minimum standard.

4.              The PEA is preliminary in nature and includes only inferred mineral resources that are considered too speculative geologically to have any economic consideration applied to them that would enable them to be categorized as a mineral reserve.  There is no certainty that the PEA will be realized. These results have no impact on the results of any pre-feasibility or feasibility with respect to the Maracás Menchen Mine.

 

GE21 recommended the Near Mine Targets be developed sequentially as follows: Novo Amparo Norte, Gulçari A Norte & Gulçari B, São José, Campbell in pit resources and Novo Amparo.

 

The Technical Report prepared by GE21 was designed to allow the Company to more fully optimize operations in order to maximize the Maracás Menchen Mine’s NPV and is based on the production of V2O5 from the Maracás Menchen Mine’s mineral resources as well as from its established mineral reserves. The report does not provide any credit for by-products, however Largo will continue to evaluate the technical and economic viability of all potential by-products. The Technical Report respects the definition of PEA as described in the CSA Staff Notice 43-307 — Mining Technical Report — Preliminary Economic Assessments, issued by the Canadian Securities Administrators on August 16, 2012.

 

12

 

Qualified Persons

 

Porfírio Cabaleiro Rodriguez, Mining Engineer, BSc (Mine Eng), MAIG employed by GE21, Leonardo Apparicio da Silva, Mining Engineer, BSc (Min Eng), MSc (Met Eng), MAIG associated to GE21, and Fabio Valerio Xavier, Geologist, BSc, Geol, MAIG associated to GE21, are the Qualified Persons as defined in NI 43-101 responsible for the Technical Report and are all independent of the Company.

 

Quality Assurance Quality Control

 

The scientific and technical information in this reserves and resources section of the MD&A has been reviewed and approved by Porfírio Cabaleiro Rodriguez, Mining Engineer, BSc (Mine Eng), MAIG, GE21 director; Leonardo Apparicio da Silva, Mining Engineer, BSc (Min Eng), MSc (Met Eng), MAIG; and Fabio Valerio Xavier, Geologist, BSc, Geol, MAIG, both employed by GE21, all of whom are Qualified Persons as defined in NI 43-101.

 

Recent Developments

 

The Company completed a two-phase exploration program in 2018. Phase I was a 2,000 metre in-pit drill program designed to further define the reserve block model for production over the next two to three years in the Campbell Pit. This program began in the middle of April 2018 and was completed on May 30, 2018. The in-pit program completed 31 holes totalling 2,323 metres. The data was modelled and used for mine planning and development purposes. Consultants from GE21 assisted in the modelling.

 

Phase II included a 4,950 metre drilling program focused on upgrading and expanding the Near Mine Targets and along strike high priority targets. Drilling began on June 4, 2018 with two rigs focused at Novo Amparo Norte and the Company completed 24 holes totalling 4,223 metres prior to December 31, 2018. This included 13 infill and 11 step out holes. On December 19, 2018, the Company announced that this program had expanded the mineralization to the north and south at Novo Amparo Norte. Infill drilling was designed to upgrade the resource category at Novo Amparo Norte. Additionally, seven holes were drilled on targets south of the Campbell pit. The drill program was completed on October 23, 2018.

 

The Company extended the Phase II definition drilling program at Novo Amparo Norte in the first quarter of 2019.  Diamond drilling was initiated at Novo Amparo Norte on January 15, 2019. In total, 47 diamond drill holes (5,404 metres) were completed. The work focused on increasing confidence in the resource categories and extending mineralisation at depth and along strike. This program was completed mid-February 2019. On June 11, 2019, the Company reported a new resource estimate for Novo Amparo Norte based on 12,911 metres (88 drill holes) of drilling with an effective date of May 31, 2019.

 

Novo Amparo Norte Mineral Resources

Effective date: May 31, 2019

 

Category

 

Tonnes
(million)

 

V2O5 head grade
(%)

 

Magnetics
(%)

 

Magnetic
concentrate V2O5
(%)

 

V2O5 contained in
magnetic concentrate
(t)

 

Measured (M)

 

6.25

 

0.91

 

33.1

 

2.32

 

48,046

 

Indicated (I)

 

5.98

 

0.85

 

28.1

 

2.50

 

41,996

 

Total M&I

 

12.23

 

0.88

 

30.7

 

2.41

 

90,042

 

Inferred

 

11.33

 

0.90

 

31.2

 

2.46

 

86,960

 

 

1.              Mineral Resources have been classified using the Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”), CIM Standards on Mineral Resources and Reserves, Definitions and Guidelines prepared by the CIM Standing Committee on Reserve Definitions and adopted by the CIM Council.

2.              Mineral Resources which are not Mineral Reserves do not have demonstrated economic viability.  The Inferred Mineral Resource in this estimate has a lower level of confidence than that applied to the Measured and Indicated Mineral Resource.  It is reasonably expected that a portion of the Inferred Mineral Resource could be upgraded to an Indicated Mineral Resource with continued exploration.

3.              Magnetic content is determined by Davis Tube Test methodology.  V2O5 content of the magnetic concentrate was determined by XRF79C methodology at the SGS facility in Belo Horizonte, Brazil.

4.              Assuming only mineralized zones grading 0.45% V2O5 or greater

5.              Numbers may not add up exactly due to rounding.

 

In Q2 2019 exploration work shifted to the Novo Amparo deposit where 4,646 metres (24 drill holes) of drilling were completed. Drilling was also completed at the São José deposit where 2,813 metres (18 drill holes) of drilling were completed. Further drilling was carried out on the Gulçari A Norte and Gulçari B (now considered as one target — “Gulçari A Norte”). Drilling on all targets focused on extending and upgrading known mineralization as defined in the

 

13

 

2017 Technical Report. The Company also completed 1,177 metres of drilling (three holes) neat the Campbell Pit to explore for target horizons down dip and along strike of the current reserve area.

 

In Q4 2019 work focused primarily on the Gulçari A South target where 2,313 metres (16 drill holes) were completed.

 

Based on all diamond drilling across the Near Mine Targets, a new geological interpretation of the Rio Jacaré intrusion was formulated that has helped the Company to better understand the intrusive complex and improve drilling targeting and interpretation of mineralized zones. Diamond drilling was completed in early December 2019 and all analytical data has now been received.

 

After delays experienced in early 2020 due to the COVID-19 pandemic, exploration drilling was ramped up and 14,133 metres of drilling (80 holes) was completed in Q3 2020. Drilling focused on definition drilling at Novo Amparo Norte, Gulçari A Norte and additional drilling at the Campbell Pit.

 

In Q4 2020 the Company completed drilling at Novo Amparo Norte and Gulçari A Norte and continued its definition drill program focusing on São José (2,475 metres in 15 holes) and Novo Amparo (2,261 metres in 14 holes).  In total in Q4 2020, the Company drilled 10,638 metres in 60 diamond drill holes. The Company initiated drilling at the Campbell Pit and drilled one condemnation hole within the new waste pile area. During 2020 the Company completed 24,771 metres in 125 holes, including 8,188 metres (32 holes) at Novo Amparo Norte, 6,898 metres (45 holes) at Gulçari A Norte, 2,475 metres (15 holes) at São José, 2,261 metres (14 holes) at Novo Amparo, 4,761 metres (19 holes) at the Campbell Pit and one condemnation hole (188 metres). 2020 drilling was completed on December 17th, 2020.

 

Outlook

 

The Company has developed an Exploration Master Plan (“EMP”) for 2019 to 2021 to advance known deposits, increase resources and reserves, further evaluate the potential for along strike continuation of the vanadium rich magnetite mineralization and to maintain the Company’s mineral concessions to the north and south of the Campbell deposit. The EMP includes ground magnetic surveys, mapping, sampling, soil sampling, drilling and modelling of deposits on the mineral concessions. Where required, landowners are being contacted for permission to access their lands to perform exploration work. In addition, necessary permits for vegetation suppression are in process and upon receipt, the Company will continue with its planned exploration program.

 

The Company is currently reviewing this plan and updating it to reflect the work completed to date and new targets generated by the exploration work.

 

The Company has planned for 10,000 metres of drilling in 2021, focusing on the Campbell Pit and areas requiring work to maintain the concessions in good standing in accordance with the applicable rules and regulations in Brazil.  Work on the Campbell Pit will focus on drilling to aid in developing a short-term block model to inform the mining process and also to complete drilling on down dip targets previously identified. Exploration on the South Block will include a soil geochemistry sampling survey to identify areas of anomalous mineralisation associated with known magnetic anomalies to further refine exploration targeting.

 

Campo Alegre de Lourdes

 

Recent Developments

 

The Company completed a 1,200-metre drilling program in December 2018 and has finalized the geological and structural mapping needed to satisfy the Company’s contractual requirements and to develop the Company’s knowledge of mineralization.

 

In Q3 2019, a limited drill program was completed at the Morro Branca target at the Campo Alegre de Lourdes project.  From July 5 to August 5, 2019 the Company completed six diamond drill holes (1,016 metres) to test down dip extension of mineralisation and to collect material for additional metallurgical testing at the Morro Branca target.  Internal studies to determine potential recovery of both V2O5 and titanium dioxide (“TiO2”) from the vanadiferous titanomagnetite (“VTM”) mineralisation are being complimented with additional work currently underway at SGS Lakefield’s facility in Canada.  This metallurgical testing continues and is being supplemented through the Company’s internal work. The agreement with Companhia Baiana de Pesquisa Mineral (“CBPM”) expired on January 11, 2020.  Prior to expiration the Company met with CBPM representatives and agreed to extend the Research Agreement for an additional two years to allow the Company to continue to evaluate the geological and economic potential of the project and the renewed agreement now extends the working relationship to January 11, 2022.

 

14

 

During Q4 2020, the Company incurred $nil in expenditures (Q4 2019 — $nil) at the Campo Alegre de Lourdes project and in 2020, the Company incurred $57 in expenditures (2019 — $285).

 

Outlook

 

Metallurgical work planned in 2020 was delayed due to the COVID-19 pandemic. The Company will look to complete this testing in 2021 and develop and exploration program based on these, and other technical results.

 

Northern Dancer

 

Recent Developments

 

Management is not conducting any further work at this time on the Northern Dancer property, as the majority of the Company’s efforts are focused on the Maracás Menchen Mine.

 

During Q4 2020, the Company incurred $2 in expenditures (Q4 2019 — $2) at the Northern Dancer project and in 2020, the Company incurred $7 in expenditures (2019 — $8).

 

Outlook

 

Management is not planning any significant expenditures for the foreseeable future. The Company was issued with an amended Inspector’s Direction for reclamation work with respect to historic drill roads and drill sites on the property. Due to COVID-19 restrictions for travel and work as defined by the Yukon Territory government, the time frame to complete this work was extended to July 1, 2021. The Company is in the process of assessing the Inspector’s Direction and developing an action plan to resolve the outstanding issues.

 

Currais Novos Tungsten Tailings Project

 

Recent Developments

 

Management is not conducting any work at this time on the Currais Novos Tungsten Tailings Project, as the majority of the Company’s efforts are focused on the Maracás Menchen Mine.

 

Outlook

 

Management is not planning any significant expenditures for the foreseeable future.

 

FINANCIAL INSTRUMENTS

 

Financial assets and financial liabilities at December 31, 2020 and 2019 were as follows:

 

 

 

December 31,
2020

 

December 31,
2019

 

Cash

 

$

79,145

 

$

127,499

 

Restricted cash

 

—

 

76

 

Amounts receivable

 

13,791

 

189

 

Accounts payable and accrued liabilities

 

15,968

 

77,741

 

Debt

 

24,788

 

—

 

 

The Company’s risk exposures and the impact on the Company’s financial instruments are summarized in note 22. There have been no changes in the risks, objectives, policies and procedures from the previous year.

 

LIQUIDITY AND CAPITAL RESOURCES

 

The Company’s continuance as a going concern is dependent on its ability to maintain profitable levels of operations.

 

At December 31, 2019, the price per lb of V2O5 was between $4.80 and $5.85. This increased to a range of between $5.30 and $5.50 at December 31, 2020, with an average of approximately $5.29 for Q4 2020, compared with approximately $5.37 for Q4 2019, $6.07 for Q1 2020, $6.14 for Q2 2020 and $5.33 for Q3 2020.

 

The average price per lb of V2O5 was approximately $6.01 for January 2021. At the date of the MD&A, the market price of V2O5 was in a range of $8.00 to $8.65 per lb.

 

15

 

The Company is continuing to monitor the rapidly developing impacts of the COVID-19 pandemic and will take all possible actions to help minimize the impact on the Company and its people.

 

The adequacy of the Company’s capital structure is assessed on an ongoing basis and adjusted as necessary after taking into consideration the Company’s strategy, vanadium prices, economic conditions and associated risks. To maintain or adjust its capital structure, the Company may adjust capital expenditures, issue new common shares or take on new debt. At December 31, 2020, the Company’s debt balance was $24,788 as a result of the two credit facilities as described below and in note 12. On February 3, 2021, the Company completed the settlement of the outstanding credit facilities as described below and in note 25.

 

Credit facilities

 

On March 18, 2020, the Company secured a $13,000 credit facility with a bank in Brazil. This facility was fully drawn down and proceeds of R$65,980 ($13,000) were received on March 20, 2020. This facility is due to be repaid as a lump sum payment on March 12, 2021, together with accrued interest at a rate of 3.35% per annum.

 

On March 24, 2020 the Company secured a $11,788 credit facility with a second bank in Brazil. This facility was fully drawn down and proceeds of R$60,000 ($11,788) were received on March 24, 2020. This facility is due to be repaid as a lump sum payment on March 18, 2021, together with accrued interest at a rate of 6.29% per annum.

 

On February 3, 2021, the Company completed the settlement of the outstanding credit facilities through the repayment in full of the outstanding principal amount of $24,788. Interest of $891 and a break fee of $74 were also paid as part of the settlement.

 

Maracás Menchen Mine

 

The Company’s vanadium production commenced during August 2014, with the first sale of V2O5 flake concluded during September 2014. Since this time, the Company has continued to further ramp up the production and sales of V2O5, as described in the “Maracás Menchen Mine” section above. In connection with the ramp-up, the Company has also evaluated its future financial requirements, including inter alia its sustaining capital and working capital needs for the next 12 months.

 

At December 31, 2020, the Company had an accumulated deficit of $71,903 since inception (December 31, 2019 — $78,870) and had a net working capital surplus of $92,950 (December 31, 2019 —$78,380) (defined as current assets less current liabilities). At December 31, 2020, the total amount due within 12 months on the Company’s debt was $24,788 (December 31, 2019 — $nil). The debt was repaid in full on February 3, 2021 as noted above and in note 25.

 

The following table details the Company’s expected remaining contractual cash flow requirements at December 31, 2020 for its liabilities and commitments with agreed repayment periods. The amounts presented are based on the undiscounted cash flows and therefore, may not equate to the carrying amounts on the consolidated statement of financial position.

 

 

 

Less than
6 months

 

6 months
to 1 year

 

1 to 3 years

 

Over 3 years

 

Accounts payable and accrued liabilities

 

$

15,968

 

$

—

 

$

—

 

$

—

 

Debt

 

24,788

 

—

 

—

 

—

 

Operating and purchase commitments

 

12,296

 

1,370

 

324

 

—

 

 

 

$

53,052

 

$

1,370

 

$

324

 

$

—

 

 

The Company’s principal sources of liquidity are its cash flow from operating activities and cash of $79,145 (December 31, 2019 — $127,499). In response to the vanadium price decreases throughout 2019, the Company has adopted certain measures to manage its liquidity risk including repaying its Notes during the year ended December 31, 2019, securing two new credit facilities in Q1 2020 and completing the settlement of these facilities in February 2021. Despite these measures, and in conjunction with the current vanadium price environment, a risk exists that the Company will not have sufficient liquidity to meet its obligations as they come due. At December 31, 2020, the Company’s trade receivables balance was $13,749, with the trade receivable with the Company’s former off-take partner in a liability position of $32 and classified as trade payables within accounts payable and accrued liabilities (refer to notes 11 and 22(a)) (December 31, 2019 —$67,325).

 

16

 

OUTSTANDING SHARE DATA

 

(Exercise prices presented in this section are in Canadian dollars and also not thousands).

 

At December 31, 2020, there were 587,789 common shares of the Company outstanding. At the date of this MD&A, there were 64,505 common shares of the Company outstanding (after giving effect for the share consolidation completed on March 4, 2021).

 

At December 31, 2020, under the share compensation plan of the Company, 2,256 RSUs were outstanding and 5,882 stock options were outstanding with exercise prices ranging from C$0.46 to C$3.04 and expiry dates ranging between September 16, 2021 and March 24, 2025. If exercised, the Company would receive proceeds of C$4,862. The weighted average exercise price of the stock options outstanding is C$0.83.

 

As of the date of this MD&A, 205 RSUs and 574 stock options were outstanding with exercise prices ranging from C$4.60 to C$30.40 and expiry dates ranging between September 16, 2021 and March 24, 2025 (after giving effect for the share consolidation completed on March 4, 2021).

 

At December 31, 2020, 83,659 common share purchase warrants were outstanding with exercise prices ranging from C$0.29 to C$1.30 and expiring between January 28, 2021 and December 8, 2025. If these warrants were exercised, the Company would receive proceeds of C$40,788. The weighted average exercise price of the warrants is C$0.49.

 

As of the date of this MD&A, 1,859 common share purchase warrants were outstanding with exercise prices ranging from C$11.50 to C$13.00 and expiring between December 1, 2022 and December 8, 2025 (after giving effect for the share consolidation completed on March 4, 2021).

 

TRANSACTIONS WITH RELATED PARTIES

 

The 2020 annual consolidated financial statements include the financial statements of the Company and its subsidiaries. There have been no changes in the Company’s ownership interests in its subsidiaries since December 31, 2019, with the addition of one new subsidiary as shown in note 4(a). The Company had transactions with related parties during 2020. Refer to note 18.

 

Additional information regarding the compensation of officers and directors of the Company is disclosed in the Company’s management information circular, which is available under the profile of the Company on SEDAR at www.sedar.com.

 

COMMITMENTS AND CONTINGENCIES

 

At December 31, 2020, the Company was party to certain management and consulting contracts. Minimum commitments under the agreements are approximately $2,455 and all payable within one year. These contracts also require that additional payments of up to approximately $3,682 be made upon the occurrence of certain events such as change of control. As the triggering event has not occurred, the contingent payments have not been reflected in these consolidated financial statements.

 

In 2008, Largo agreed to sell 100% of its vanadium production under an off-take agreement which, following the election by the Company, expired at the end of April 2020. The Company has entered into a number of contracts with third party customers to deliver monthly quantities of the Company’s vanadium products. A significant proportion of the Company’s monthly vanadium production in 2021 has been committed.

 

The Company’s mining and exploration activities are subject to various federal, provincial and international laws and regulations governing the protection of the environment. These laws and regulations are continually changing and generally becoming more restrictive. The Company has made payments to comply with such laws and regulations.

 

The Company indemnifies its directors and officers against any and all claims or losses reasonably incurred in the performance of their service to the Company to the extent permitted by law. The Company has acquired and maintains liability insurance for its directors and officers.

 

17

 

The Company is committed to a minimum amount of rental payments under five leases of office space which expire between October 31, 2021 and December 31, 2023. Minimum rental commitments remaining under the leases are approximately $598, including $277 due within one year. In addition, minimum rental commitments remaining under other short-term leases are approximately $12, all due within one year.

 

At the Company’s Maracás Menchen Mine, the Company has entered into purchase order contracts with remaining amounts due related to goods not received or services not rendered as of December 31, 2020 of $10,925.

 

The Company, through its subsidiaries, is party to legal proceedings in the ordinary course of its operations related to legally binding agreements with various third parties under supply contracts and consulting agreements. At December 31, 2020 two such proceedings were ongoing, each in Brazil. The first relates to a supply agreement for the Maracás Menchen Mine which was filed with the courts in October 2014. The amount claimed totals R$9,900 ($1,905), with a counterclaim filed by Vanádio for R$10,700 ($2,059). A provision of R$1,281 ($247) has been recognized at December 31, 2020 for the probable loss (December 31, 2019 — R$1,324 ($329)). The second proceeding relates to a consulting agreement dispute for which R$3,900 ($750) (December 31, 2019 — R$3,900 ($968)) has been claimed against two of the Company’s subsidiaries. No provision has been recognized for this proceeding. The Company and its subsidiaries are also party to legal proceedings regarding labour matters. A provision was recorded at December 31, 2019 for such proceedings in an amount of R$3,468 ($860). At December 31, 2020, the provision recognized was R$3,538 ($681). The outcome of these proceedings remains dependent on the final judgment, which the Company does not expect to be delivered within the next 12 months. Management does not expect the outcome of any of the remaining proceedings to have a materially adverse effect on the results of the Company’s financial position or results of operations. Should any losses result from the resolution of these claims and disputes, they will be charged to operations in the period that they are determined.

 

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING

 

Disclosure Controls and Procedures

 

The Company’s disclosure controls and procedures (“DC&P”) are designed to provide reasonable assurance that all relevant information is communicated to management to allow timely decisions regarding required disclosure. An evaluation of the effectiveness of the Company’s DC&P, as defined under the rules of the Canadian Securities Administration, was conducted as at December 31, 2020 under the supervision of the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”) and with the participation of management. Based on the results of that evaluation, the CEO and CFO concluded that the Company’s DC&P were effective as at December 31, 2020 providing reasonable assurance that the information required to be disclosed in the Company’s annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported in accordance with securities legislation.

 

Internal Control over Financial Reporting

 

Internal control over financial reporting (“ICFR”) is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. ICFR should include those policies and procedures that establish the following:

 

·                      maintenance of records in reasonable detail, that accurately and fairly reflect the transactions and dispositions of assets;

 

·                      reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with applicable IFRS;

 

·                      receipts and expenditures are only being made in accordance with authorizations of management or the Board of Directors; and

 

·                      reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial instruments.

 

The Company’s management, under supervision of the CEO and CFO, assessed the effectiveness of the Company’s ICFR based on the criteria established in Internal Control — Integrated Framework (2013) issued by The Committee of Sponsoring Organizations of the Treadway Commission and concluded that as at December 31, 2020, the Company’s ICFR was effective.

 

18

 

During the year ended December 31, 2020, the Company did not make any significant changes to its ICFR that would have materially affected, or reasonably likely to materially affect, its ICFR.

 

Limitations of Disclosure Controls and Procedures and Internal Control over Financial Reporting

 

The Company’s management, including the CEO and CFO, believe that due to inherent limitations, any DC&P or ICFR, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that any design will not succeed in achieving its stated goals under all potential future conditions. Accordingly, because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Additionally, management is required to use judgment in evaluating DC&P and ICFR.

 

SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS

 

The preparation of the 2020 annual consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Actual outcomes could differ from these estimates. These 2020 annual consolidated financial statements include estimates, which, by their nature, are uncertain. The impacts of such estimates are pervasive throughout the unaudited condensed interim consolidated financial statements and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised, and the revision affects both current and future periods.

 

Significant areas requiring the use of estimates and assumptions relate to the determination of mineral reserve estimates and the impact on stripping costs, useful lives of mine properties, plant and equipment, impairment analysis of non-financial assets, estimates of the timing of outlays for asset retirement obligations and the determination of functional currencies. Other significant areas include the valuation of mine properties, plant and equipment and development properties, estimates of provisions for environmental rehabilitation, current and deferred taxes and contingencies. Refer to note 4(d) for a detailed description of these areas of significant judgment, estimates and assumptions. Actual results could differ from those estimates.

 

CHANGES IN ACCOUNTING POLICIES

 

The basis of presentation, and accounting policies and methods of their application in the 2020 annual consolidated financial statements are consistent with those used in the Company’s annual consolidated financial statements for the year ended December 31, 2019, except as disclosed in note 3, which describes the change in functional and presentation currencies.

 

NON-GAAP(2) MEASURES

 

The Company uses certain non-GAAP financial performance measures in its MD&A, which are described in the following section.

 

Revenues Per Pound

 

The Company’s MD&A refers to revenues per pound sold, a non-GAAP performance measure that is used to provide investors with information about a key measure used by management to monitor performance of the Company.

 

This measure, along with cash operating costs and total cash costs, is considered to be one of the key indicators of the Company’s ability to generate operating earnings and cash flow from its Maracás Menchen Mine and sales activities. This revenues per pound measure does not have any standardized meaning prescribed by IFRS and differs from measures determined in accordance with IFRS. This measure is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in

 

(2)  GAAP — Generally Accepted Accounting Principles.

 

19

 

accordance with IFRS. This measure is not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.

 

The following table provides a reconciliation of this measure per pound sold to revenues as per the 2020 annual consolidated financial statements.

 

 

 

Three months ended

 

Year ended

 

 

 

December 31,
2020

 

December 31,
2019

 

December 31,
2020

 

December 31,
2019

 

Revenues(1)

 

$

42,254

 

$

25,808

 

$

119,987

 

$

105,107

 

V2O5 equivalent sold (000s lb)

 

8,259

 

6,305

 

22,606

 

22,399

 

Revenues per pound sold ($/lb)

 

$

5.12

 

$

4.09

 

$

5.31

 

$

4.69

 

 

(1)         Year ended as per note 23.

Three months ended calculated as the amount per note 23 less the amount disclosed for the nine-month periods in note 21 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2020 and 2019: $119,987 — $77,733 = $42,254 and $105,107 — $79,299 = $25,808.

 

Cash Operating Costs Per Pound

 

The Company’s MD&A refers to cash operating costs per pound, a non-GAAP performance measure, in order to provide investors with information about a key measure used by management to monitor performance. This information is used to assess how well the Maracás Menchen Mine is performing compared to plan and prior periods, and also to assess its overall effectiveness and efficiency.

 

Cash operating costs includes mine site operating costs such as mining costs, plant and maintenance costs, sustainability costs, mine and plant administration costs, royalties and sales, general and administrative costs (all for the Mine properties segment), but excludes depreciation and amortization, share-based payments, foreign exchange gains or losses, commissions, reclamation, capital expenditures and exploration and evaluation costs. Operating costs not attributable to the Mine properties segment are also excluded, including conversion costs, product acquisition costs, distribution costs, and inventory write-downs. These costs are then divided by the pounds of vanadium sold that were produced by the Maracás Menchen Mine to arrive at the cash operating costs per pound. Prior to 2020, these costs were divided by the pounds of production from the Maracás Menchen Mine, rather than pounds sold. These periods have been recalculated using produced pounds sold in the following table. This measure differs to the new total cash costs non-GAAP measure the Company uses to measure its overall performance (see later in this section).

 

These measures, along with revenues, are considered to be one of the key indicators of the Company’s ability to generate operating earnings and cash flow from its Maracás Menchen Mine. These cash operating costs measures do not have any standardized meaning prescribed by IFRS and differ from measures determined in accordance with IFRS. These measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These measures are not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.

 

In addition, the Company’s MD&A refers to cash operating costs excluding royalties. This is a non-GAAP performance measure and is calculated as cash operating costs less royalties, as disclosed in the following table.

 

The following table provides a reconciliation of cash operating costs per pound for the Maracás Menchen Mine to operating costs as per the 2020 annual consolidated financial statements.

 

20

 

 

 

Three months ended

 

Year ended

 

 

 

December 31,
2020

 

December 31,
2019

 

December 31,
2020

 

December 31,
2019

 

Operating costs(1)

 

$

31,604

 

$

22,679

 

$

88,390

 

$

92,950

 

Professional, consulting and management fees(2)

 

963

 

1,045

 

3,086

 

4,513

 

Other general and administrative expenses(3)

 

514

 

257

 

1,669

 

859

 

Less: conversion costs(4)

 

(1,330

)

—

 

(1,976

)

—

 

Less: product acquisition costs(5)

 

(2,965

)

—

 

(10,459

)

—

 

Less: distribution costs(6)

 

(1,029

)

—

 

(2,269

)

—

 

Less: inventory write-down(7)

 

—

 

—

 

(3

)

—

 

Less: depreciation and amortization expense(8)

 

(5,728

)

(6,085

)

(17,473

)

(23,847

)

Cash operating costs

 

22,029

 

17,896

 

60,965

 

74,475

 

Less: royalties(9)

 

(1,958

)

(1,496

)

(7,107

)

(5,947

)

Cash operating costs excluding royalties

 

20,071

 

16,400

 

53,858

 

68,528

 

Produced V2O5 sold (000s lb)(10)

 

7,831

 

6,305

 

21,027

 

22,399

 

Cash operating costs per pound ($/lb)(10)

 

$

2.81

 

$

2.84

 

$

2.90

 

$

3.32

 

Cash operating costs excluding royalties per pound ($/lb)(10)

 

$

2.56

 

$

2.60

 

$

2.56

 

$

3.06

 

 

(1)                   Year ended as per note 24.

Three months ended calculated as the amount per note 24 less the amount disclosed for the nine-month periods in note 22 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2020 and 2019: $88,390 — $56,786 = $31,604 and $92,950 — $70,271 = $22,679.

(2)                   Year ended as per the Mine properties segment in note 19.

Three months ended calculated as the amount for the Company’s Mine properties segment in note 19, less the amount disclosed for the Mine properties segment for the nine-month periods in note 18 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2020 and 2019: $3,086 — $2,123 = $963 and $4,513 — $3,468 = $1,045.

(3)                   Year ended as per the Mine properties segment in note 19.

Three months ended calculated as the amount for the Company’s Mine properties segment in note 19, less the amount disclosed for the Mine properties segment for the nine-month periods in note 18 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2020 and 2019: $1,669 — $1,155 = $514 and $859 — $602 = $257.

(4)                   As per note 24.

(5)                   Year ended as per note 24.

Three months ended calculated as the amount per note 24 less the amount disclosed for the nine-month period in note 22 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2020 adjusted for inventory write-down now recognized in product acquisition costs: $10,459 — $7,180 — ($317 — $3) = $2,965.

(6)                   Year ended as per note 24.

Three months ended calculated as the amount per note 24 less the amount disclosed for the nine-month period in note 22 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2020: $2,269 — $1,240 = $1,029.

(7)                   As per note 6.

(8)                   Year ended as per note 24.

Three months ended calculated as the amount per note 24 less the amount disclosed for the nine-month periods in note 22 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2020 and 2019: $17,473 — $11,745 = $5,728 and $23,847 — $17,762 = $6,085.

(9)                   Year ended as per note 24.

Three months ended calculated as the amount per note 24 less the amount disclosed for the nine-month periods in note 22 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2020 and 2019: $7,107 — $5,149 = $1,958 and $5,947 — $4,451 = $1,496.

(10)            Cash operating costs per pound and cash operating costs excluding royalties per pound for Q4 2019 and 2019 were previously calculated and presented on a pounds produced basis (V2O5 produced (000s lb) = 6,638 and 23,318, respectively; V2O5 sold (000s lb) = 6,305 and 22,399, respectively). These measures have been calculated and presented on a pounds sold basis in this MD&A.

 

Total Cash Costs

 

The Company’s MD&A refers to total cash costs, a non-GAAP performance measure, in order to provide investors with information about a key measure used by management to monitor performance. This information is used to assess how well the Company is performing at producing and selling vanadium products compared to plan and prior periods, and also to assess its overall effectiveness and efficiency.

 

Total cash costs are a non-GAAP performance measure that includes all operating costs, sales and distribution costs and the Company’s total professional, consulting and management fees and other general and administrative expenses. Total cash costs exclude royalties, depreciation and amortization, share-based payments, foreign exchange gains or losses, commissions, reclamation costs, exploration and evaluation costs

 

21

 

and capital expenditures. These costs are then divided by the total pounds of vanadium sold by the Company to arrive at total cash costs.

 

This measure differs from cash operating costs per pound in that it includes all operating costs, sales and distribution costs, professional, consulting and management fees and other general and administrative expenses, rather than just those costs from the Mine properties segment, and is calculated on total V2O5 equivalent pounds sold rather than pounds sold that were produced by the Maracás Menchen Mine. The Company believes this will be a more accurate reflection of its all-in unit costs.

 

This total cash costs measure does not have any standardized meaning prescribed by IFRS and differs from measures determined in accordance with IFRS. This measure is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. This measure is not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.

 

The following table provides a reconciliation of total cash costs to operating costs as per the 2020 annual consolidated financial statements.

 

 

 

Three months ended

 

Year ended

 

 

 

December 31,
2020

 

December 31,
2020

 

Operating costs(1)

 

$

31,604

 

$

88,390

 

Professional, consulting and management fees(2)

 

3,229

 

8,255

 

Other general and administrative expenses(2)

 

1,027

 

3,329

 

Less: depreciation and amortization expense(3)

 

(5,728

)

(17,473

)

Less: royalties(4)

 

(1,958

)

(7,107

)

 

 

$

28,174

 

$

75,394

 

V2O5 equivalent sold (000s lb)

 

8,259

 

22,606

 

Total cash costs ($/lb)

 

$

3.41

 

$

3.34

 

 

(1)                   Year ended as per note 24.

Three months ended calculated as the amount per note 24 less the amount disclosed for the nine-month period in note 22 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2020: $88,390 — $56,786 = $31,604.

(2)                   As per the consolidated statements of income (loss) and comprehensive income (loss).

(3)                   Year ended as per note 24.

Three months ended calculated as the amount per note 24 less the amount disclosed for the nine-month period in note 22 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2020: $17,473 — $11,745 = $5,728.

(4)                   Year ended as per note 24.

Three months ended calculated as the amount per note 24 less the amount disclosed for the nine-month period in note 22 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2020: $7,107 — $5,149 = $1,958.

 

RISKS AND UNCERTAINTIES

 

The Company is subject to various business, financial and operational risks that could materially adversely affect the Company’s future business, operations and financial condition. These risks could cause such future business, operations and financial condition to differ materially from the forward-looking statements and information contained in this MD&A and as described in the Cautionary Statement Regarding Forward-Looking Information found in this MD&A.

 

The Company’s business activities expose it to significant risks due to the nature of mining, development and exploration activities. The ability to manage these risks is a key component of the Company’s business strategy.  Management is forward looking in its assessment of risks. Identification of key risks occurs in the course of business activities, pursuing approved strategies and as part of the execution of risk oversight responsibilities at the management and Board of Directors’ level.

 

For a full discussion of the Company’s Risks and Uncertainties, please refer to the Annual Information Form for the year ended December 31, 2020, which is filed to the Company’s profile on SEDAR at www.sedar.com.

 

22

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

 

The information presented in this MD&A contains “forward-looking information” and “forward-looking statements” within the meaning of applicable Canadian and United States securities laws concerning the Company’s projects, capital, anticipated financial performance, business prospects and strategies and other general matters. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those included in the forward-looking information. The use of words such as “intend”, “anticipate”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “should”, “believe” and similar expressions are intended to identify forward-looking information. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance are not statements of historical fact and may constitute forward-looking information. Statements relating to mineral resources are also forward-looking information, as they involve the implied assessment, based on certain estimates and assumptions that the mineral resources described can be profitably produced in the future. There is no certainty that it will be commercially viable to produce any portion of the mineral resources.

 

Forward-looking information includes statements with respect to: the Company’s goals regarding development of its projects and further exploration and development of its properties; the Company’s proposed plans for advancing its projects, and potential future exploration and development projects; expectations regarding the continuity of mineral deposits; future prices of V2O5; future production at our Maracás Menchen Mine; the extent and overall impact of the COVID-19 pandemic; the results in the Technical Report including resource estimates; expectations regarding any environmental issues that may affect planned or future exploration and development programs and the potential impact of complying with existing and proposed environmental laws and regulations; receipt and timing of third party approvals; government regulation of mineral exploration and development operations in Brazil; expectations regarding any social or local community issues in Brazil that may affect planned or future exploration and development programs; and statements in respect of V2O5 demand and supply. These statements and information are only predictions based on current information and knowledge, some of which may be attributed to third party industry sources. Actual future events or results may differ materially. Undue reliance should not be placed on such forward-looking information, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. By its nature, forward-looking information involves numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking information will not be realized.

 

The following are some of the assumptions upon which forward-looking information is based: that general business and economic conditions will not change in a material adverse manner; demand for, and stable or improving price of V2O5; receipt of regulatory and governmental approvals, permits and renewals in a timely manner; that the Company will not experience any material accident, labour dispute or failure of plant or equipment or other material disruption in the Company’s operations at the Maracás Menchen Mine; the availability of financing for operations and development; the Company’s ability to procure equipment and operating supplies in sufficient quantities and on a timely basis; that planned expansion at the Maracás Menchen Mine will be completed in budget and in a reasonable timeframe and that the results of such expansion will be sufficient to expand the existing resources consistent with management’s expectations; that the estimates of the resources and reserves at the Maracás Menchen Mine are within reasonable bounds of accuracy (including with respect to size, grade and recovery); that the Company’s current expansion of development programs and objectives can be achieved; the Company’s ability to attract and retain skilled personnel and directors; and the accuracy of the Company’s mineral resource estimates (including size, grade and recoverability) and the geological, operational and price assumptions on which these are based.

 

Actual results could differ materially from those anticipated in this forward-looking information as a result of the risks and uncertainties including, without limitation:  volatility in prices of, and demand for, V2O5; risks inherent in mineral exploration and development; uncertainties associated with estimating mineral resources; uncertainties related to title to the Company’s mineral projects; revocation of government approvals; tightening of the credit markets, global economic uncertainty and counterparty risk; failure of plant, equipment or processes to operate as anticipated; unexpected events and delays during construction and development; competition for, among other things, capital and skilled personnel; geological, technical and drilling problems; fluctuations in foreign

 

23

 

exchange or interest rates and stock market volatility; rising costs of labour and equipment; risks associated with political and/or economic instability in Brazil; inherent uncertainties involved in the legal dispute resolution process, including in foreign jurisdictions; changes in income tax and other laws of foreign jurisdictions; and other factors discussed under “Risk Factors” in the Company’s Annual Information Form for the year ended December 31, 2019 which is filed to the Company’s profile on SEDAR at www.sedar.com, and any additional risks as included in “Risks and Uncertainties” above. Assumptions relating to the potential mineralization of the Maracás Menchen Mine are discussed in the Technical Report which is available under the Company’s profile on SEDAR.

 

Additional risks and uncertainties not currently known to the Company, or that the Company currently deems to be immaterial, may also materially and adversely affect the Company’s business and prospects. Should one or more of these risks and uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in forward-looking information. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking information, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. The reader is cautioned not to place undue reliance on forward-looking information.

 

The forward-looking information is presented in this MD&A for the purpose of assisting investors in understanding the Company’s plans, objectives and expectations in making an investment decision and may not be appropriate for other purposes. This forward-looking information is expressly qualified in its entirety by this cautionary statement. Forward-looking information contained in this MD&A or documents incorporated herein by reference are made as of the date hereof or the document incorporated herein by reference, as applicable, and are accordingly subject to change after such date. The Company disclaims any obligation to update any such forward-looking information to reflect events or circumstances after the date of such information, or to reflect the occurrence of anticipated or unanticipated events, except as required by law.

 

The information presented contains “forward-looking statements”, within the meaning of the United States Private Securities Litigation Reform Act of 1995, and “forward-looking information” under similar Canadian legislation, concerning the business, operations and financial performance and condition of the Company. Forward-looking statements and forward-looking information include, but are not limited to, statements with respect to the estimation of mineral reserves and mineral resources; the realization of mineral reserve estimates; the timing and amount of estimated future production; costs of production; metal prices and demand for materials; capital expenditures; success of exploration and development activities; permitting time lines and permitting, mining or processing issues; government regulation of mining operations; environmental risks; and title disputes or claims. Generally, forward-looking statements and forward-looking information can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “guidance”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”.  Certain terms appearing in the following table are defined previously in this MD&A.  This table contains the material forward-looking statements made by the Company in this MD&A, the assumptions made by the Company in making those statements and the risk factors associated with those assumptions.

 

Forward-looking
Statements

 

Assumptions

 

Risk Factors

The 2020 annual consolidated financial statements were prepared on a going concern basis. The going concern basis assumes that the Company will continue in operation for the foreseeable future and will be able to realize

 

The Company has assumed that it will be able to continue in operation for the foreseeable future and will be able to discharge its liabilities and commitments in the normal course of business, as it anticipates

 

The Company’s continuance as a going concern is dependent on its ability to maintain profitable levels of operations.

 

The adequacy of the Company’s capital structure is assessed on an ongoing basis and adjusted as necessary after taking into consideration the Company’s strategy, vanadium prices, economic conditions and associated risks. To maintain or adjust its capital structure, the Company may adjust capital

 

24

 

Forward-looking
Statements

 

Assumptions

 

Risk Factors

its assets and discharge its liabilities and commitments in the normal course of business.

 

that it will address working capital and other shortfalls through positive cash flow from operations.

 

expenditures, issue new common shares or take on new debt. At the date of this MD&A, the Company’s debt balance was $nil as a result of the repayment subsequent to 2020 (note 25).

Production volumes are expected to achieve the expanded nameplate capacity of 1,100 tonnes per month during 2021.

 

 

 

2021 Production Guidance:

12,000 – 12,500 tonnes

 

The Company assumes that consistent production levels will reach a level of or in excess of 1,100 tonnes per month beginning in Q2 2021.

 

The Company prepares future production estimates with respect to existing operations.

 

Actual production and costs may vary from the estimates for a variety of reasons such as estimates of grade, tonnage, dilution and metallurgical and other characteristics of the ore varying from the actual ore mined, revisions to mine plans, risks and hazards associated with mining, adverse weather conditions, unexpected labour shortages or strikes, equipment or design failures and other interruptions in production.

 

Production costs may also be affected by increased mining costs, variations in predicted grades of the deposits, increases in level of ore impurities, labour costs, raw material costs, inflation and fluctuations in currency exchange rates. Failure to achieve production targets or cost estimates could have a material adverse impact on the Company’s sales, profitability, cash flow and overall financial performance.

 

In the event that the Company obtains debt financing, repayment terms associated with such financing will likely be based, among other things, on production schedule estimates.  Any failure to meet such timelines or to produce amounts forecast may constitute defaults under such debt financing, which could result in the Company having to repay loans.

2021 Costs Guidance:

 

Cash operating costs excluding royalties(1)

$3.10 – 3.30

 

Total cash costs(1)

$3.50 – 3.70

 

(1) These measures are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this MD&A.

 

 

The Company assumes that its current estimation of future operating costs is accurate, as it is largely based on the current cost profile of operations at the Maracás Menchen Mine.

 

 

Capital and operating cost estimates made by management with respect to future projects, or current operations in the early stages of production are estimates which are in turn based, among other things, on interpretation of geological data, feasibility studies, anticipated climactic conditions and other information.

 

Any or all of the above could affect the accuracy of the estimates including unanticipated changes in grade and tonnage to be mined and processed; incorrect data on which engineering assumptions are made; unanticipated transportation costs; accuracy of equipment and construction cost estimates; difficulty or failure to meet scheduled construction completion dates, facility or equipment commissioning dates, or metal production dates; poor or unsatisfactory construction quality resulting in failure to meet completion, commissioning or production dates;

 

25

 

Forward-looking
Statements

 

Assumptions

 

Risk Factors

 

 

 

 

increased expenditures required as a failure to meet completion, commissioning or production dates; capital overrun related to the completion of any construction phase including capital overrun associated with demobilization of construction workers and contractors; labour negotiations; unanticipated costs relating to the commencement of operations, ramp up and production sustainment; changes in government regulation (including regulations regarding prices, cost of consumables, royalties, duties, taxes, permitting and restrictions on production quotas or exportation of the Company’s products; and change in commodity input costs and quantities).

Sustaining capital expenditures of approximately $8,000 to $10,000 are expected to be required in 2021 to reach and sustain the operational capacity to produce 1,100 tonnes per month (excluding capitalized waste stripping costs).

 

Management assumes that its current estimation of capital expenditures is accurate, as based on operational estimates produced and current experience with operations.

 

Capital and operating costs estimates made by management with respect to future projects, or current operations in production, or not yet in the production phase are estimates which are in turn based, among other things, on interpretation of geological data, feasibility studies, anticipated climactic conditions and other information.

 

Any or all of these can affect the accuracy of the estimates including unanticipated changes in grade and tonnage to be mined and processed; incorrect data on which engineering assumptions are made; unanticipated transportation costs; accuracy of equipment and construction cost estimates; difficulty or failure to meet scheduled construction completion dates, facility or equipment commissioning dates, or metal production dates; poor or unsatisfactory construction quality resulting in failure to meet completion, commissioning or production dates; increased expenditures required as a failure to meet completion, commissioning or production dates; capital overrun related to the completion of any construction phase including capital overrun associated with demobilization of construction workers and contractors; labour negotiations; unanticipated costs relating to the commencement of operations, ramp up and production sustainment; changes in government regulation (including regulations regarding prices, cost of consumables, royalties, duties, taxes, permitting and restrictions on production quotas or exportation of the Company’s products; and change in commodity input costs and quantities).

 

26

 

Forward-looking statements and forward looking information are based on the opinions and estimates of management as of the date such statements are made, and they are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking statements or forward looking information, including, but not limited to, unexpected events during operations; variations in ore grade; risks inherent in the mining industry; delay or failure to receive board approvals;  timing and availability of external financing on acceptable terms; risks relating to international operations; actual results of exploration activities; conclusions of economic valuations; changes in project parameters as plans continue to be refined; and fluctuating metal prices and currency exchange rates.

 

Although management of the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements or forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements and forward-looking information. The Company does not undertake to update any forward-looking statements or forward-looking information that are incorporated by reference herein, except in accordance with applicable securities laws.

 

Investors are advised that National Instrument 43-101 of the Canadian Securities Administrators (“NI 43-101”) requires that each category of mineral reserves and mineral resources be reported separately.  Mineral resources that are not mineral reserves do not have demonstrated economic viability.

 

Cautionary Note to U.S. Investors Concerning Estimates of Measured, Indicated or Inferred Resources

 

This MD&A uses the terms “measured”, “indicated” and “inferred” mineral resources. United States investors are advised that while such terms are recognized and required by Canadian regulations, the United States Securities and Exchange Commission does not recognize them. Inferred mineral resources have a great amount of uncertainty as to their existence, and as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or other economic studies. United States investors are cautioned not to assume that all or any part of measured or indicated mineral resources will ever be converted into mineral reserves. United States investors are also cautioned not to assume that all or any part of an inferred mineral resource exists or is economically or legally mineable.

 

27

Exhibit 99.69

 

 

 

LARGO RESOURCES LTD.

 

ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

 

(Expressed in thousands / 000’s of U.S. dollars)

 

 

TABLE OF CONTENTS

 

Management’s Responsibility for Financial Reporting

i

 

 

Independent Auditor’s Report

ii

 

 

Consolidated Statements of Financial Position

1

 

 

Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)

2

 

 

Consolidated Statements of Changes in Equity

3

 

 

Consolidated Statements of Cash Flows

4

 

 

Notes to the Annual Consolidated Financial Statements

5

 

 

 

1)

Nature of operations

5

 

 

 

2)

Statement of compliance

5

 

 

 

3)

Change in functional and presentation currency

5

 

 

 

4)

Basis of preparation, significant accounting policies, and future accounting changes

7

 

 

 

5)

Amounts receivable

21

 

 

 

6)

Inventory

21

 

 

 

7)

Vanadium products

21

 

 

 

8)

Other intangible assets

21

 

 

 

9)

Mine properties, plant and equipment

22

 

 

 

10)

Leases

23

 

 

 

11)

Accounts payable and accrued liabilities

23

 

 

 

12)

Debt

23

 

 

 

13)

Provisions

24

 

 

 

14)

Issued capital

26

 

 

 

15)

Equity reserves

26

 

 

 

16)

Earnings (loss) per share

28

 

 

 

17)

Taxes

28

 

 

 

18)

Related party transactions

30

 

 

 

19)

Segmented disclosure

30

 

 

 

20)

Commitments and contingencies

32

 

 

 

21)

Capital management

33

 

 

 

22)

Financial instruments

33

 

 

 

23)

Revenues

36

 

 

 

24)

Expenses

36

 

 

 

25)

Subsequent events

36

 

 

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING

 

The accompanying consolidated financial statements of Largo Resources Ltd. (the “Company”) for the years ended December 31, 2020 and 2019 have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. Management is responsible for the preparation and presentation of the consolidated financial statements, including responsibility for significant accounting judgments and estimates and, where relevant, the choice of accounting principles.

 

In discharging its responsibility for the integrity and fairness of the consolidated financial statements, management designs and maintains the necessary accounting systems and an appropriate system of internal controls to provide reasonable assurance that transactions are authorized, assets are safeguarded and financial records are properly maintained.

 

The board of directors (the “Board” or “Board of Directors”) and the Audit Committee are composed primarily of Directors who are neither management nor employees of the Company. The Board is responsible for overseeing management in the performance of its financial reporting responsibilities, and for approving the financial information presented. The Board fulfils these responsibilities by reviewing the financial information prepared by management and discussing relevant matters with management and the independent auditors. The Audit Committee has the responsibility of meeting with management and the independent auditors to discuss the internal controls over the financial reporting process, auditing matters and financial reporting issues. The Board is also responsible for recommending the appointment of the Company’s external independent auditors.

 

The Company’s independent auditors audit the consolidated financial statements annually on behalf of the Company’s shareholders. The Company’s independent auditors have full and free access to management and the Audit Committee.

 

(signed)

(signed)

Paulo Misk

Ernest Cleave

President & Chief Executive Officer

Chief Financial Officer

March 17, 2021

March 17, 2021

 

 

 

Independent auditor’s report

 

To the Shareholders of Largo Resources Ltd.

 

Our opinion

 

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of Largo Resources Ltd. and its subsidiaries (together, the Company) as at December 31, 2020 and 2019 and January 1, 2019, and its financial performance and its cash flows for the years ended December 31, 2020 and 2019 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS).

 

What we have audited

 

The Company’s consolidated financial statements comprise:

 

·                 the consolidated statements of financial position as at December 31, 2020 and 2019 and January 1, 2019;

 

·                 the consolidated statements of income (loss) and comprehensive income (loss) for the years ended December 31, 2020 and 2019;

 

·                 the consolidated statements of changes in equity for the years ended December 31, 2020 and 2019;

 

·                 the consolidated statements of cash flows for the years ended December 31, 2020 and 2019; and

 

·                 the notes to the consolidated financial statements, which include significant accounting policies and other explanatory information.

 

Basis for opinion

 

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Independence

 

We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities in accordance with these requirements.

 

PricewaterhouseCoopers LLP

PwC Tower, 18 York Street, Suite 2600, Toronto, Ontario, Canada M5J 0B2

T: +1 416 863 1133, F: +1 416 365 8215

 

“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.

 

 

Key audit matters

 

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year ended December 31, 2020. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

 

Key audit matter

 

How our audit addressed the key audit matter

 

 

 

Assessment of impairment indicators of mineproperties, plant and equipment (mine PP&E)

 

 

Our approach to addressing the matter included the following procedures, among others:

 

Refer to note 4c – Significant accounting policies, note 4d – Critical judgements and estimation uncertainties and note 9 – Mine properties, plant and equipment to the consolidated financial statements.

 

The net book value of mine PP&E amounted to US$149 million as at December 31, 2020. The carrying values of mine PP&E are assessed by management for impairment when indicators of impairment exist.

 

In undertaking the assessment of whether impairment indicators exist, management is required to apply significant judgment in assessing whether changes to certain external and internal factors would be considered an indicator of impairment. Internal and external factors, such as (i) changes in future production and sales volumes; (ii) changes in quantity and grade of the recoverable reserves and resources; (iii) changes in vanadium prices, capital and operating costs; and (iv) changes in discount rates, are evaluated by management in determining whether there are any indicators of impairment. No impairment indicators were noted.

 

We considered this a key audit matter due to

(i) the significance of the mine PP&E balance and

(ii) the significant audit effort and subjectivity in applying audit procedures to assess the internal and external factors evaluated by management in its assessment of impairment indicators, which required significant management judgment.

 

·                  Evaluated management’s assessment of indicators of impairment, which included the following:

 

·                  Assessed the completeness of external and internal factors that could be considered as indicators of impairment of the Company’s mine PP&E, including consideration of evidence obtained in other areas of the audit.

 

·                  Assessed the changes in vanadium prices, quantity and grade of the recoverable reserves and resources, capital and operating costs, future production and sales volumes and discount rates by considering external market data, current and past performance of the Company and evidence obtained in other areas of the audit, as applicable.

 

 

Other information

 

Management is responsible for the other information. The other information comprises the Management’s Discussion and Analysis.

 

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

 

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

 

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

 

Responsibilities of management and those charged with governance for the consolidated financial statements

 

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

 

In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

 

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

 

Auditor’s responsibilities for the audit of the consolidated financial statements

 

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

 

 

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

 

·                 Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

 

·                 Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

 

·                 Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

 

·                 Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

 

·                 Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

 

·                 Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

 

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

 

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

 

 

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

 

The engagement partner on the audit resulting in this independent auditor’s report is Marelize Barber.

 

/s/PricewaterhouseCoopers LLP

 

 

 

Chartered Professional Accountants, Licensed Public Accountants

 

 

 

Toronto, Ontario

 

March 17, 2021

 

 

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

 

 

 

 

As at

 

 

 

Notes

 

December 31,
2020

 

December 31,
2019

 

January 1,
2019

 

 

 

 

 

 

 

Restated

 

Restated

 

 

 

 

 

 

 

(note 3)

 

(note 3)

 

Assets

 

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

 

Cash

 

 

 

$

79,145

 

$

127,499

 

$

151,388

 

Restricted cash

 

 

 

—

 

76

 

15

 

Amounts receivable

 

5

 

19,097

 

6,150

 

45,932

 

Inventory

 

6

 

35,337

 

17,981

 

10,552

 

Vanadium products

 

7

 

—

 

3,258

 

—

 

Prepaid expenses

 

 

 

3,718

 

1,632

 

2,460

 

Total Current Assets

 

 

 

137,297

 

156,596

 

210,347

 

Non-current Assets

 

 

 

 

 

 

 

 

 

Deferred income tax

 

17(c)

 

7,178

 

10,571

 

13,863

 

Other intangible assets

 

8

 

4,366

 

—

 

—

 

Mine properties, plant and equipment

 

9

 

148,965

 

190,494

 

181,685

 

Total Non-current Assets

 

 

 

160,509

 

201,065

 

195,548

 

Total Assets

 

 

 

$

297,806

 

$

357,661

 

$

405,895

 

Liabilities

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

11

 

$

15,968

 

$

77,741

 

$

24,570

 

Deferred revenue

 

 

 

3,223

 

—

 

—

 

Current portion of provisions

 

13

 

368

 

475

 

307

 

Debt

 

12

 

24,788

 

—

 

86,100

 

Total Current Liabilities

 

 

 

44,347

 

78,216

 

110,977

 

Non-current Liabilities

 

 

 

 

 

 

 

 

 

Provisions

 

13

 

6,295

 

7,342

 

6,509

 

Total Non-current Liabilities

 

 

 

6,295

 

7,342

 

6,509

 

Total Liabilities

 

 

 

50,642

 

85,558

 

117,486

 

Equity

 

 

 

 

 

 

 

 

 

Issued capital

 

14

 

406,214

 

396,026

 

378,859

 

Equity reserves

 

15

 

21,291

 

21,448

 

26,308

 

Accumulated other comprehensive loss

 

 

 

(108,438

)

(66,501

)

(63,634

)

Deficit

 

 

 

(71,903

)

(78,870

)

(53,124

)

Total Equity

 

 

 

247,164

 

272,103

 

288,409

 

Total Liabilities and Equity

 

 

 

$

297,806

 

$

357,661

 

$

405,895

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

9, 20

 

 

 

 

 

 

 

Subsequent events

 

25

 

 

 

 

 

 

 

 

—The accompanying notes form an integral part of the consolidated financial statements—

 

Annual Consolidated Financial Statements For The Years Ended December 31, 2020 and 2019

 

1

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)

 

 

 

Years ended December 31,

 

 

 

Notes

 

2020

 

2019

 

 

 

 

 

 

 

Restated

 

 

 

 

 

 

 

(note 3)

 

Revenues

 

23

 

$

119,987

 

$

105,107

 

Other gains (losses)

 

7

 

1,636

 

(1,360

)

 

 

 

 

121,623

 

103,747

 

Expenses

 

 

 

 

 

 

 

Operating costs

 

24

 

(88,390

)

(92,950

)

Professional, consulting and management fees

 

 

 

(8,255

)

(9,979

)

Foreign exchange (loss)

 

 

 

(9,064

)

(6,011

)

Other general and administrative expenses

 

24

 

(3,329

)

(3,184

)

Share-based payments

 

15

 

(1,638

)

(3,554

)

Finance costs

 

24

 

(1,350

)

(13,692

)

Interest income

 

 

 

1,148

 

4,913

 

Exploration and evaluation costs

 

 

 

(3,022

)

(2,784

)

 

 

 

 

(113,900

)

(127,241

)

Net income (loss) before tax

 

 

 

$

7,723

 

$

(23,494

)

Income tax (expense)

 

17(a)

 

(139

)

(864

)

Deferred income tax (expense)

 

17(a)

 

(823

)

(2,612

)

Net income (loss)

 

 

 

$

6,761

 

$

(26,970

)

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

Items that subsequently will be reclassified to operations:

 

 

 

 

 

 

 

Unrealized (loss) on foreign currency translation

 

 

 

(41,937

)

(2,867

)

Comprehensive (loss)

 

 

 

$

(35,176

)

$

(29,837

)

Basic earnings (loss) per Common Share

 

16

 

$

0.12

 

$

(0.50

)

Diluted earnings (loss) per Common Share

 

16

 

$

0.11

 

$

(0.50

)

Weighted Average Number of Shares Outstanding (in 000’s)

 

 

 

 

 

 

 

- Basic

 

16

 

56,402

 

53,499

 

- Diluted

 

16

 

61,360

 

53,499

 

 

—The accompanying notes form an integral part of the consolidated financial statements—

 

2

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

 

 

Shares

 

Issued
Capital

 

Equity
Reserves

 

Accumulated
Other
Comprehensive
Loss

 

Deficit

 

Shareholders’
Equity

 

Balance at January 1, 2019 (Restated(1))

 

529,126

 

$

378,859

 

$

26,308

 

$

(63,634

)

$

(53,124

)

$

288,409

 

Grant of share options

 

—

 

—

 

637

 

—

 

—

 

637

 

Grant of restricted share units

 

—

 

—

 

1,867

 

—

 

—

 

1,867

 

Share-based payments

 

—

 

—

 

 1,050

 

—

 

—

 

1,050

 

Exercise of warrants

 

21,176

 

13,479

 

(4,771

)

—

 

—

 

8,708

 

Exercise of share options

 

3,248

 

2,062

 

(793

)

—

 

—

 

1,269

 

Exercise of restricted share units

 

984

 

1,626

 

(1,626

)

—

 

—

 

—

 

Expiry of warrants

 

—

 

—

 

(70

)

—

 

70

 

—

 

Expiry of share options

 

—

 

—

 

(1,154

)

—

 

1,154

 

—

 

Currency translation adjustment

 

—

 

—

 

—

 

(2,867

)

—

 

(2,867

)

Net loss for the year

 

—

 

—

 

—

 

—

 

(26,970

)

(26,970

)

Balance at December 31, 2019 (Restated(1))

 

554,534

 

$

396,026

 

$

21,448

 

$

(66,501

)

$

(78,870

)

$

272,103

 

Grant of share options

 

—

 

—

 

743

 

—

 

—

 

743

 

Grant of restricted share units

 

—

 

—

 

 437

 

—

 

—

 

437

 

Share-based payments

 

—

 

—

 

458

 

—

 

—

 

458

 

Exercise of warrants

 

29,529

 

6,136

 

(2,320

)

—

 

—

 

3,816

 

Exercise of share options

 

805

 

626

 

(209

)

—

 

—

 

417

 

Exercise of restricted share units

 

403

 

1,183

 

(1,183

)

—

 

—

 

—

 

Expiry of warrants

 

—

 

—

 

(159

)

—

 

159

 

—

 

Expiry of share options

 

—

 

—

 

(47

)

—

 

47

 

—

 

Purchase consideration (note 8)

 

2,518

 

2,243

 

2,123

 

—

 

—

 

4,366

 

Currency translation adjustment

 

—

 

—

 

—

 

(41,937

)

—

 

(41,937

)

Net income for the year

 

—

 

—

 

—

 

—

 

6,761

 

6,761

 

Balance at December 31, 2020

 

587,789

 

$

406,214

 

$

21,291

 

$

(108,438

)

$

(71,903

)

$

247,164

 

 

(1)             Refer to note 3.

 

—The accompanying notes form an integral part of the consolidated financial statements—

 

3

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

Years ended December 31,

 

 

 

Notes

 

2020

 

2019

 

 

 

 

 

 

 

Restated

 

Operating Activities

 

 

 

 

 

(note 3)

 

Net income (loss) for the year

 

 

 

$

6,761

 

$

(26,970

)

Adjustment for Non-cash Items

 

 

 

 

 

 

 

Other (gains) losses

 

7

 

(1,636

)

1,360

 

Depreciation

 

 

 

17,507

 

23,868

 

Share-based payments

 

15

 

1,638

 

3,554

 

Unrealized foreign exchange (gain) loss

 

 

 

(12,750

)

8,448

 

Finance costs

 

24

 

1,350

 

13,692

 

Interest income

 

 

 

(1,148

)

(4,913

)

Income tax expense

 

17(a)

 

139

 

864

 

Deferred income tax expense

 

17(a)

 

823

 

2,612

 

Income tax paid

 

 

 

(619

)

(888

)

Cash Provided Before Working Capital Items

 

 

 

12,065

 

21,627

 

Change in amounts receivable

 

 

 

(14,378

)

38,852

 

Change in inventory

 

 

 

(16,215

)

(7,836

)

Change in vanadium products

 

 

 

5,036

 

(4,625

)

Change in prepaid expenses

 

 

 

(2,356

)

765

 

Change in accounts payable and accrued liabilities

 

 

 

(46,883

)

55,814

 

Change in deferred revenue

 

 

 

3,223

 

—

 

Net Cash (Used in) Provided by Operating Activities

 

 

 

(59,508

)

104,597

 

Financing Activities

 

 

 

 

 

 

 

Receipt of debt

 

12

 

24,788

 

—

 

Repayment of debt

 

12

 

—

 

(92,812

)

Debt issue costs, interest and other associated fees paid

 

 

 

—

 

(7,331

)

Interest received

 

 

 

1,135

 

4,917

 

Change in restricted cash

 

 

 

76

 

(61

)

Issuance of common shares

 

15

 

4,233

 

9,977

 

Net Cash Provided by (Used in) Financing Activities

 

 

 

30,232

 

(85,310

)

Investing Activities

 

 

 

 

 

 

 

Mine properties, plant and equipment

 

 

 

(18,106

)

(37,948

)

Net Cash (Used in) Investing Activities

 

 

 

(18,106

)

(37,948

)

Effect of foreign exchange on cash

 

 

 

(972

)

(5,228

)

Net Change in Cash

 

 

 

(48,354

)

(23,889

)

Cash position – beginning of the year

 

 

 

127,499

 

151,388

 

Cash Position – end of the year

 

 

 

$

79,145

 

$

127,499

 

Non-cash investing activities

 

8

 

 

 

 

 

 

–The accompanying notes form an integral part of the consolidated financial statements–

 

4

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

1)                  Nature of operations

 

The Company is a producer and supplier of high-quality vanadium products, which are sourced from one of the world’s highest-grade vanadium deposits at the Company’s Maracás Menchen Mine located in Brazil. Substantially all of the Company’s efforts are devoted to operating the Maracás Menchen Mine and to the sales of vanadium. While the Company’s Maracás Menchen Mine has reached commercial production, future changes in market conditions and feasibility estimates could result in the Company’s mineral resources not being economically recoverable.

 

The Company is a corporation governed by the Business Corporations Act (Ontario) and domiciled in Canada whose shares are listed on the Toronto Stock Exchange (“TSX”). The head office, principal address and records office of the Company are located at 55 University Avenue, Suite 1105, Toronto, Ontario, Canada M5J 2H7.

 

2)                  Statement of compliance

 

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) applicable to a going concern. The significant accounting policies applied in these consolidated financial statements are presented in note 4 and are based on IFRS effective as at December 31, 2020.

 

The consolidated financial statements were approved by the Board of Directors of the Company on March 17, 2021.

 

3)                  Change in functional and presentation currency

 

On May 1, 2020 the Company changed its presentation currency from the  Canadian dollar (“C$” or “CAD”) to the U.S. dollar (“$” or “USD”).  Prior period comparative information has been restated in U.S. dollars to reflect the change in presentation currency.

 

Also on May 1, 2020 the functional currency of Largo Resources Ltd., Largo Commodities Holding Ltd. and Largo Commodities Trading Ltd. changed prospectively to the U.S. dollar from the Canadian dollar, Euro and Euro, respectively. The Company reconsiders the functional currency of its operations if there is a change in events and conditions which determine the primary economic environment. In early 2020, the Company’s off-take agreement with its former off-take partner expired, and the Company started generating U.S. dollar denominated revenues and incurring U.S. dollar denominated costs. This is a significant judgment considering the significance of the revenues and costs to the Company’s activities, and the primary economic environments in which the Company and its subsidiaries operate.

 

The exchange rates used to translate assets and liabilities to reflect the change in functional currency on adoption is $1 equals C$1.3874 and $1 equals 0.9194 Euros (“EUR”).

 

The financial statements of entities with a functional currency that is not the U.S. dollar have been translated into U.S. dollars in accordance with International Accounting Standards (“IAS”) 21, The Effects of Changes in Foreign Exchange Rates, as follows:

 

·                       Assets and liabilities have been translated into U.S. dollars using period-end exchange rates of:

 

·                       January 1, 2019: $1 equals C$1.3620 and $1 equals 3.8748 Brazilian reals (“BRL”).

 

·                       December 31, 2019: $1 equals C$1.3023, $1 equals 0.8902 EUR and $1 equals 4.0307 BRL.

 

·                       Consolidated statements of income (loss) and other comprehensive income (loss) have been translated using average foreign exchange rates prevailing during the reporting periods which ranged from $1 equals C$1.3199 to C$1.3397 and $1 equals 3.7684 to 4.1158 BRL;

 

·                       Shareholder’s equity balances have been translated using historical average foreign exchange rates for the periods in which the transactions occurred; and

 

·                       Resulting exchange differences have been recorded within the foreign currency translation reserve accounts.

 

5

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

The impact of the change in presentation currency on the consolidated financial statements is as follows:

 

Consolidated statement of financial position — as at January 1, 2019

 

 

 

Previously
reported in CAD

 

Restated
USD

 

Assets

 

 

 

 

 

Total Current Assets

 

C$

286,491

 

$

210,347

 

Total Non-current Assets

 

 

266,334

 

195,548

 

Total Assets

 

 

552,825

 

405,895

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Total Current Liabilities

 

C$

151,233

 

$

110,977

 

Total Non-current Liabilities

 

 

8,865

 

6,509

 

Total Liabilities

 

 

160,098

 

117,486

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

Issued capital

 

C$

415,259

 

$

378,859

 

Equity reserves

 

 

25,853

 

26,308

 

Accumulated other comprehensive loss

 

 

(18,904

)

(63,634

)

Deficit

 

 

(29,481

)

(53,124

)

Total Equity

 

 

392,727

 

288,409

 

Total Liabilities and Equity

 

C$

552,825

 

$

405,895

 

 

Consolidated statement of financial position — as at December 31, 2019

 

 

 

Previously
reported in CAD

 

Restated
USD

 

Assets

 

 

 

 

 

Total Current Assets

 

C$

203,992

 

$

156,596

 

Total Non-current Assets

 

262,126

 

201,065

 

Total Assets

 

466,118

 

357,661

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Total Current Liabilities

 

C$

101,979

 

$

78,216

 

Total Non-current Liabilities

 

9,572

 

7,342

 

Total Liabilities

 

111,551

 

85,558

 

 

 

 

 

 

 

Equity

 

 

 

 

 

Issued capital

 

C$

437,937

 

$

396,026

 

Equity reserves

 

19,447

 

21,448

 

Accumulated other comprehensive loss

 

(38,744

)

(66,501

)

Deficit

 

(64,073

)

(78,870

)

Total Equity

 

354,567

 

272,103

 

Total Liabilities and Equity

 

C$

466,118

 

$

357,661

 

 

6

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

Consolidated statement of income (loss) and comprehensive income (loss) — year ended December 31, 2019

 

 

 

Previously
reported in CAD

 

Restated
USD

 

Revenues

 

C$

140,012

 

$

105,107

 

Other gains (losses)

 

(1,795

)

(1,360

)

 

 

138,217

 

103,747

 

 

 

 

 

 

 

Operating costs

 

(123,841

)

(92,950

)

Professional, consulting and management fees

 

(13,250

)

(9,979

)

Foreign exchange loss

 

(8,350

)

(6,011

)

Other general and administrative expenses

 

(3,901

)

(3,184

)

Share-based payments

 

(4,716

)

(3,554

)

Finance costs

 

(18,290

)

(13,692

)

Interest income

 

6,556

 

4,913

 

Exploration and evaluation costs

 

(3,684

)

(2,784

)

 

 

(169,476

)

(127,241

)

Net income (loss) before tax

 

C$

(31,259)

 

$

(23,494

)

Income tax (expense)

 

(1,144

)

(864

)

Deferred income tax (expense)

 

(3,809

)

(2,612

)

Net income (loss)

 

C$

(36,212)

 

$

(26,970

)

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

Unrealized gain (loss) on foreign currency translation

 

(19,840

)

(2,867

)

Comprehensive income (loss)

 

C$

(56,052)

 

$

(29,837

)

 

Consolidated statement of cash flows — year ended December 31, 2019

 

 

 

Previously
reported in CAD

 

Restated
USD

 

Net Cash Provided by Operating Activities

 

C$

139,282

 

$

104,597

 

Net Cash (Used in) Financing Activities

 

(115,226

)

(85,310

)

Net Cash (Used in) Investing Activities

 

(50,386

)

(37,948

)

Effect of foreign exchange on cash

 

(13,781

)

(5,228

)

Net Change in Cash

 

(40,111

)

(23,889

)

Cash position – beginning of the year

 

206,188

 

151,388

 

Cash position – end of the year

 

C$

166,077

 

$

127,499

 

 

4)                  Basis of preparation, significant accounting policies, and future accounting changes

 

These consolidated financial statements have been prepared on a historical cost basis except for certain financial instruments and vanadium products which are measured at fair value and certain inventory balances carried at net realizable value. In addition, these consolidated financial statements have been prepared using the accrual basis of accounting.

 

The preparation of financial statements in accordance with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgment in applying the Company’s accounting policies.

 

These consolidated financial statements are presented in thousands of U.S. dollars, unless otherwise noted.  References to the symbol “C$” or “CAD” mean the Canadian dollar, references to the symbol “EUR” mean the Euro and references to the symbol “R$” or “BRL” mean the Brazilian real, the official currency of Brazil.

 

7

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

a)                  Basis of consolidation

 

Subsidiaries consist of entities over which the Company is exposed to, or has rights to, variable returns as well as the ability to affect those returns through the power to direct the relevant activities of the entity. Subsidiaries are consolidated from the date control is transferred to the Company and are de-consolidated from the date control ceases. The consolidated financial statements include all the assets, liabilities, revenues, expenses and cash flows of the Company and its subsidiaries after eliminating inter-entity balances and transactions.

 

The consolidated financial statements include the financial condition and results of operations of the Company and its subsidiaries as outlined below:

 

 

 

 

 

December 31,

 

 

 

Accounting

 

Name

 

Property

 

2020

 

2019

 

Arrangement

 

Method

 

Vanádio de Maracás S.A.

 

Maracás Menchen Mine (Brazil)

 

99.94

%

99.94

%

Subsidiary

 

Consolidation

 

Mineração Campo Alegre de Lourdes Ltda.

 

Campo Alegre Project (Brazil)

 

100

%

100

%

Subsidiary

 

Consolidation

 

Mineração Currais Novos Ltda.

 

Currais Novos Project (Brazil)

 

100

%

100

%

Subsidiary

 

Consolidation

 

Largo Resources (Yukon) Ltd.

 

Northern Dancer Project (Canada)

 

100

%

100

%

Subsidiary

 

Consolidation

 

Largo Commodities Holding Ltd.

 

N/A

 

100

%

100

%

Subsidiary

 

Consolidation

 

Largo Commodities Trading Ltd.

 

N/A

 

100

%

100

%

Subsidiary

 

Consolidation

 

Largo Resources USA Inc.

 

N/A

 

100

%

100

%

Subsidiary

 

Consolidation

 

Largo Clean Energy Corp.

 

N/A

 

100

%

N/A

 

Subsidiary

 

Consolidation

 

 

b)                  Functional and presentation currency

 

The consolidated financial statements are presented in U.S. dollars which is the functional and reporting currency of the Company. The functional currency of the Company’s Brazilian subsidiaries is the Brazilian real, the functional currency of the Company’s Canadian subsidiary is the Canadian dollar, the functional currency of Largo Commodities Holding Ltd. and Largo Commodities Trading Ltd. is the U.S. dollar and the functional currency of Largo Resources USA Inc. and Largo Clean Energy Corp. is the U.S. dollar.

 

In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are translated at the rates prevailing at that date. Non-monetary items denominated in foreign currencies are translated at the rates prevailing on the transaction dates. Income and expenses are translated at the average exchange rates for the period where these approximate the rates on the dates of transactions.

 

Exchange differences are recognized in the consolidated statement of income (loss) and comprehensive income (loss) in the period in which they arise except for:

 

·                       exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings; and

 

·                       exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognized initially in other comprehensive income and reclassified from equity to profit or loss on disposal or partial disposal of the net investment.

 

8

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

All other foreign exchange gains and losses are presented in the consolidated statement of income (loss) and comprehensive income (loss) within “foreign exchange (loss)”.

 

The financial statements of subsidiaries that do not have the U.S. dollar as the functional currency are translated into U.S. dollars as follows: assets and liabilities — at the closing rate at the date of the statement of financial position; income and expenses — at the average rate for the period (if this is considered a reasonable approximation to actual rates) or at the rate on the date of transaction. All resulting changes are recognized in other comprehensive income (loss) as foreign currency translation adjustments.

 

c)                   Significant accounting policies

 

1.                   Cash and cash equivalents

 

Cash and cash equivalents comprise cash on hand and call deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. At December 31, 2020 and 2019, the Company held no cash equivalents.

 

2.                   Inventories

 

Finished product inventories, work-in-process inventory and stockpiles are measured at the lower of weighted average production cost or average purchase cost and net realizable value. Warehouse materials are measured at the lower of average purchase cost and net realizable value. Net realizable value is calculated as the difference between the estimated selling price and estimated costs to complete processing into a saleable form and variable selling expenses.

 

Production costs include the cost of materials, labour, mine site production overheads, depreciation and conversion costs to the applicable stage of processing.

 

The cost of ore stockpiles is increased based on the related current cost of production for the period and decreases in stockpiles are charged to cost of sales using the weighted average cost per tonne. Stockpiles are segregated between current and non-current inventories in the consolidated statement of financial position based on the period of planned usage.

 

Provisions are recorded to reduce the carrying amount of inventory to net realizable value to reflect changes in grades, quantity or other economic factors and to reflect current intentions for the use of redundant or slow-moving items. Provisions for redundant and slow-moving items are made by reference to specific items of inventory. The Company reverses provisions where there is a subsequent increase in net realizable value and where the inventory is still on hand.

 

Spare parts, stand-by and servicing equipment held are generally classified as inventories. Major capital spare parts and stand-by equipment (insurance spares) are classified as a component of mine properties, plant and equipment.

 

3.                   Vanadium products

 

Prior to May 1, 2020, vanadium products were initially recorded at cost on the date that control of the vanadium products passes to the Company. Cost was calculated as the purchase price, excluding transaction fees, which were expensed as incurred. Subsequent to initial recognition, vanadium products were measured at fair value at each reporting period end. Fair value was determined based on the most recent observable vanadium market transaction data as reported by a recognized provider of global metal prices. Gains and losses arising on the sale of the vanadium products and fair value gains and losses were recorded in the consolidated statements of income (loss) and comprehensive income (loss) as other gains (losses) in the period in which they arise.

 

The Company’s off-take agreement with its former off-take partner expired at the end of April 2020. In connection with this and with the Company managing its own sales activities from May 1, 2020 onwards,

 

9

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

the Company’s vanadium products are accounted for as finished products inventory effective from May 1, 2020.

 

4.                   Mineral exploration, evaluation and development properties

 

·                      Exploration and evaluation properties

 

Expenditures on exploration and evaluation activities are expensed to exploration and evaluation costs in the consolidated statement of income (loss) and comprehensive income (loss). The cost of acquiring prospective properties and exploration rights is capitalized to exploration and evaluation properties in the consolidated statement of financial position.

 

Post-acquisition exploration and evaluation costs relate to the initial search for deposits with economic potential and to detailed assessments of deposits or other projects that have been identified as having economic potential.

 

Once an economically viable reserve has been determined for an area and the decision to proceed with development has been approved, exploration and evaluation assets attributable to that area are first tested for impairment and then reclassified to development properties. Subsequent expenditures are capitalized to development properties.

 

Subsequent recovery of the resulting carrying value depends on successful development or sale of the undeveloped project. If impairment indicators are identified and an impairment test is performed, all irrecoverable costs will be written off.

 

·                      Development properties

 

When economically viable reserves have been determined and the decision to proceed with development has been approved, the expenditures related to construction are capitalized to development properties in the consolidated statement of financial position. Costs associated with the commissioning of new assets in the period before they are operating in the way intended by management, are capitalized, net of any pre-production revenues. Interest on borrowings related to the construction and development of qualifying assets are capitalized until substantially all the activities required to make the asset ready for its intended use are complete.

 

5.                   Mine properties, plant and equipment

 

Upon completion of mine construction, development property assets are transferred to mine properties, plant and equipment. Items of plant and equipment and mine properties are stated at cost, less accumulated depreciation and accumulated impairment losses.

 

The initial cost of an asset comprises its purchase price or construction cost, any costs directly attributable to bringing the asset into operation, the initial estimate of the rehabilitation obligation, and for qualifying assets, borrowing costs. The purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration given to acquire or construct the asset and includes the direct charges associated with bringing the asset to the location and condition necessary for putting it into use. The capitalized value of a finance lease would also be included within mine properties, plant and equipment.

 

When a mine construction project moves into the production stage, the capitalization of certain mine construction costs ceases and costs are either regarded as inventory or expensed, except for costs which qualify for capitalization relating to mining asset additions or improvements, or mineable reserve development.

 

When parts of an item of plant and equipment have different useful lives, they are accounted for as separate items (major components) of equipment.

 

10

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

6.                   Depreciation

 

Effective from the point an asset is available for its intended use, mine properties, plant and equipment are depreciated using either the straight line or units-of-production methods over the shorter of the estimated economic life of the asset or the mining operation. Depreciation and amortization are determined based on the method which best represents the use of the assets.

 

The reserve and resource estimates for each mining operation are the prime determinants of the life of a mine. In general, when the useful life of mine properties, plant and equipment is akin to the life of the mining operation and the ore body’s mineralization is reasonably well defined, the asset is depreciated on a units-of-production basis over its proven and probable mineral reserves. Non-reserve material may be included in depreciation calculations in limited circumstances where there is a high degree of confidence in its economic extraction. The Company evaluates the estimate of mineral reserves and resources at least on an annual basis and adjusts the units-of-production calculation prospectively. In 2020 and 2019, the Company has not incorporated any non-reserve material in its depreciation calculations on a units-of-production basis. When mine properties, plant and equipment are depreciated on a straight-line basis, the useful life of the asset is determined based on its estimated economic life and the most recent life of mine (“LOM”) plan. LOM plans are typically developed annually and are based on management’s current best estimates of optimized mine and processing plans, future operating costs and the assessment of capital expenditures of a mine site. Any change in the useful life is adjusted prospectively.

 

The estimated useful lives for machinery and equipment ranges from 10 to 30 years. Computers, office equipment and vehicles are depreciated using the declining balance method using rates of 20%, 10% and 20%, respectively.

 

Amounts related to capitalized costs of exploration and evaluation assets, development properties and construction in progress are not amortized as the assets are not available for use.

 

Capitalized stripping costs are depreciated over the reserves that directly benefit from the specific stripping activity using the units-of-production method. Capitalized borrowing costs are amortized over the useful life of the related asset. Residual values, useful lives and amortization methods are reviewed at least annually and adjusted if appropriate. The impact of changes to the estimated useful lives, change in depreciation method or residual values is accounted for prospectively.

 

7.                   Other intangible assets

 

Other intangible assets includes acquired intellectual property, which is initially recognized at fair value. The fair value was determined through reference to the acquisition cost paid. Other intangible assets are amortized on a straight-line basis over their useful life. The estimated useful life is 10 years.

 

8.                   Impairment of non-financial assets

 

The carrying values of capitalized exploration and evaluation properties, development properties, mine properties, plant and equipment and other intangible assets are assessed by management for impairment when indicators of such impairment exist. If any indication of impairment exists an estimate of the asset’s recoverable amount is calculated. The recoverable amount is determined as the higher of the fair value less costs of disposal (“FVLCD”) of the asset and the asset’s value in use (“VIU”).

 

Impairment is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. If this is the case, the individual assets of the Company are grouped together into cash generating units (“CGUs”) for impairment purposes. Such CGUs represent the lowest level for which there are separately identifiable cash inflows that are largely independent of the cash flows from other assets or other groups of assets. This generally results in the Company evaluating its non-financial assets on a mine or project basis.

 

11

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

If the carrying amount of the asset or CGU exceeds its recoverable amount, the asset or CGU is impaired, and an impairment loss is charged to the consolidated statement of income (loss) and comprehensive income (loss) so as to reduce the carrying amount to its recoverable amount.

 

A previously recognized impairment loss is reversed only if there has been a change in the factors which gave rise to the triggering event. If this is the case, the carrying amount of the asset is increased to its recoverable amount. The increased amount cannot exceed the carrying amount that would have been determined, net of depreciation/amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the consolidated statement of income (loss) and comprehensive income (loss).

 

9.                   Borrowing costs

 

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

 

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization. All other borrowing costs are recognized in the consolidated statement of income (loss) and comprehensive income (loss) in the period in which they are incurred.

 

10.            Revenues

 

Revenues include sales of vanadium products. The Company recognizes revenue when it transfers control of a product to the customer. The principal activity from which the Company generates its revenue is the sale of vanadium products to third parties. Delivery of the vanadium product is considered to be the only performance obligation. Revenues are measured based on the consideration specified in the contract with the customer.

 

Under the terms of the Company’s vanadium sales agreement that expired on April 30, 2020, vanadium prices were provisionally set at the time revenue was recognized based upon market commodity prices. Revenue, and a trade receivable, was recognized at the time of shipment, which is when control of the vanadium product passed to the customer and the Company’s performance obligation was satisfied. Revenue was measured using market prices on the date of transfer of control of the vanadium product. Changes in the measurement of the trade receivable, which was re-measured once the date that final selling prices were determined had been set by the Company’s former off-take partner, were also recognized as a component of revenues in the period in which the final price was determined. Variations occurred between the price recorded on the date of revenue recognition and the actual final price under the terms of the contract due to changes in market prices.

 

11.            Deferred revenue

 

Deferred revenue is recognized in the consolidated statement of financial position when a cash prepayment is received from a customer prior to the sale of vanadium. Revenue is subsequently recognized in the consolidated statement of income (loss) and comprehensive income (loss) when control has been transferred to the customer. The Company determines the current portion of deferred revenue based on quantities anticipated to be delivered over the next twelve months.

 

12.            Share-based payments

 

Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. Details regarding the determination of the fair value of equity-settled share-based payment transactions are set out in note 15.

 

12

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

The fair value determined at the grant date of the equity-settled share-based payments is expensed or capitalized, as appropriate, on a graded vesting basis over the period during which the employee becomes unconditionally entitled to equity instruments, based on the Company’s estimate of equity instruments that will eventually vest. At the end of each reporting period, the Company revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the equity reserve.

 

Equity-settled share-based payment transactions with parties other than employees are measured at the fair value of the goods or services received, except where that fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service.

 

For those options and warrants that expire after vesting, the recorded value is transferred to deficit.

 

13.            Taxation

 

Income and deferred income tax expense or recovery is comprised of current and deferred tax. Current and deferred taxes are recognized in the consolidated statement of income (loss) and comprehensive income (loss) except to the extent that they relate to an asset acquisition, or items recognized directly in equity or in other comprehensive income (loss).

 

·                      Current tax

 

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using the tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of the previous years.

 

·                      Deferred tax

 

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such deferred tax assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

 

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries, except where the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

 

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

 

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner

 

13

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

 

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its tax assets and liabilities on a net basis.

 

14.            Financial instruments

 

Financial instruments are recognized on the consolidated statement of financial position on the trade date, the date on which the Company or its subsidiaries become party to the contractual provisions of the financial instrument. All financial instruments are required to be classified and measured at fair value on initial recognition. The Company recognizes financial assets and financial liabilities on the date the Company becomes a party to the contractual provisions of the instruments. A financial asset is derecognized either when the Company has transferred substantially all the risks and rewards of ownership of the financial asset or when cash flows expire. A financial liability is derecognized when the obligation specified in the contract is discharged, cancelled or expired. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the consolidated statement of Income (loss) and comprehensive income (loss). Certain financial instruments are recorded at fair value in the consolidated statement of financial position.

 

·                      Non-derivative financial instruments

 

Non-derivative financial instruments are recognized initially at fair value plus attributable transaction costs, where applicable, for financial instruments not classified as fair value through profit or loss. Subsequent to initial recognition, non-derivative financial instruments are classified and measured as described below.

 

Financial assets at fair value through profit or loss (“FVTPL”)

 

Cash, restricted cash and trade receivables with the Company’s former off-take partner (refer to revenues accounting policy in note 4(c) part 10 and to note 22(a)) are classified as financial assets at FVTPL and are measured at fair value. Cash includes short-term investments with initial maturities of three months or less. The unrealized gains or losses related to changes in fair value of cash and restricted cash are reported in the consolidated statement of income (loss) and comprehensive income (loss). Changes in the value of trade receivables with the Company’s former off-take partner were recognized in revenues in the consolidated statement of income (loss) and comprehensive income (loss).

 

Amortized cost

 

Amounts receivable, excluding trade receivables classified as financial assets at FVTPL, are classified as and measured at amortized cost using the effective interest rate (“EIR”) method, less expected credit losses. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. EIR amortization is included in finance costs in the consolidated statement of income (loss) and comprehensive income (loss).

 

Non-derivative financial liabilities

 

Accounts payable and accrued liabilities, long-term debt, and other long-term liabilities are classified as and accounted for at amortized cost, using the EIR method. The amortization of long-term debt issue costs is calculated using the EIR method. Gains and losses are recognized in the consolidated statement of income (loss) and comprehensive income (loss) when the liabilities are derecognized, as well as through the EIR amortization process. Amortized cost is calculated by taking

 

14

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR.

 

·                      Derivative financial instruments

 

The Company may hold derivative financial instruments to hedge its risk exposure to fluctuations of other currencies compared to the Canadian dollar and the U.S. dollar. All derivative instruments not designated in a hedge relationship that qualifies for hedge accounting are classified as financial instruments at FVTPL.

 

Further, any equity instrument that does not satisfy the fixed-for-fixed criteria for classification in equity will be classified as a derivative financial instrument.

 

Derivative financial instruments at FVTPL, including embedded derivatives requiring separation from its host, are recorded in the consolidated statement of financial position at fair value.

 

Changes in estimated fair value of non-hedge derivatives at each reporting date are included in the consolidated statement of income (loss) and comprehensive income (loss).

 

Embedded derivatives in financial liabilities measured at amortized cost are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related.

 

Fair value of financial instruments

 

The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include using recent arm’s length market transactions; reference to the current fair value of another instrument that is substantially the same; discounted cash flow analysis or other valuation models.

 

Impairment of financial assets

 

The Company recognizes loss allowances for expected credit losses (“ECLs”) on its financial assets measured at amortized cost. Loss allowances for other receivables are always measured at an amount equal to lifetime ECL. Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument. The maximum period considered when estimating ECLs is the maximum contractual period over which the Company is exposed to credit risk.

 

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECL, the Company considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Company’s historical experience and informed credit assessment and including forward-looking information. The Company assumes that the credit risk on a financial asset has increased significantly if it is more than 60 days past due.

 

The Company considers a financial asset to be in default when the debtor is unlikely to pay its credit obligations to the Company in full or if the financial asset is more than 120 days past due.

 

·                      Measurement of ECLs

 

ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls, which is the difference between the cash flows due to the Company and the cash flows expected to be received.

 

15

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

·                      Credit-impaired financial assets

 

At each reporting date, the Company assesses whether financial assets carried at amortized cost are credit-impaired. A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred, such as a default or being more than 120 days past due.

 

·                      Presentation of allowance for ECLs

 

Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets.

 

·                      Write-off

 

The gross carrying amount of a financial asset carried at amortized cost is written off, either partially or in full, to the extent that there is no realistic prospect of recovery.

 

15.            Provisions

 

·                      General

 

Provisions are recognized when (a), the Company has a present obligation (legal or constructive) as a result of a past event, and (b), it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The expense relating to any provision is presented in the consolidated statement of income (loss) and comprehensive income (loss), net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized in the consolidated statement of income (loss) and comprehensive income (loss).

 

·                      Environmental rehabilitation

 

The Company records the present value of estimated costs of legal and constructive obligations required to restore operating locations in the period in which the obligation is incurred. The nature of these restoration activities includes dismantling and removing structures, rehabilitating mines and tailings ponds, dismantling operating facilities, closure of plant and waste sites, and restoration, reclamation and re-vegetation of affected areas.

 

The obligation generally arises when the asset is installed or the ground / environment is disturbed at the production location. When the liability is initially recognized, the present value of the estimated cost is capitalized by increasing the carrying amount of the related asset. Over time, the discounted liability is increased for the change in present value based on the discount rates that reflect current market assessments and the risks specific to the liability. The periodic unwinding of the discount is recognized in the consolidated statement of income (loss) and comprehensive income (loss). Additional disturbances or changes in rehabilitation costs will be recognized as additions or charges to the corresponding assets and rehabilitation liability when they occur. For closed sites, changes to estimated costs are recognized immediately in the consolidated statement of income (loss) and comprehensive income (loss).

 

16.            Earnings (loss) per share

 

Earnings (loss) per share is based on the weighted average number of common shares of the Company outstanding during the period. The diluted earnings (loss) per share reflects the potential dilution of common share equivalents, such as outstanding share options, warrants and restricted share units, in the weighted average number of common shares outstanding during the period, if dilutive. In the Company’s case, diluted loss per share is the same as basic loss per share in the current period presented as the effects

 

16

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

of including all convertible securities would be anti-dilutive. If the number of ordinary or potential ordinary shares outstanding increases as a result of a capitalisation, bonus issue or share split, or decreases as a result of a reverse share split, the calculation of basic and diluted earnings per share for all periods presented shall be adjusted retrospectively. If these changes occur after the reporting period but before the financial statements are authorised for issue, the per share calculations for those and any prior period financial statements presented shall be based on the new number of shares.

 

17.            Leases

 

At the inception of a contract, the Company assess whether a contract is, or contains, a lease.  A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Company assesses whether:

 

·                      the contract involves the use of an identified asset – this may be specified explicitly or implicitly and should be physically distinct or represent substantially all of the capacity of a physically distinct asset. If the supplier has a substantive substitution right, then the asset is not identified;

 

·                      the Company has the right to obtain substantially all of the economic benefits from the use of the assert throughout the period of use; and

 

·                      the Company has the right to direct the use of the asset. The Company has this right when it has the decision-making rights that are most relevant to changing how and for what purpose the asset is used. In rare cases where the decision about how and for what purpose the asset is used is predetermined, the Company has the right to direct the use of the asset if either:

 

·                      the Company has the right to operate the asset; or

 

·                      the Company designed the asset in a way that predetermines how and for what purpose it will be used.

 

At inception or on reassessment of a contract that contains a lease component, the Company allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices. However, for leases of land and buildings in which it is a lessee, the Company has elected not to separate non-lease components and account for the lease and non-lease components as a single lease component.

 

The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The right-of-use asset is subsequently depreciated from the commencement date to the earlier of the end of its useful life or the end of the lease term. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

 

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate.

 

The lease liability is measured at amortized cost using the effective interest method and is remeasured when there is a change in future lease payments arising from a change in an index or rate or if the Company changes its assessment of whether it will exercise a purchase, extension or termination option. When the lease liability is remeasured, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in the consolidated statement of income (loss) and comprehensive income (loss) if the carrying amount of the right-of-use asset has been reduced to zero.

 

17

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

Lease payments for short-term leases, leases of low-value assets and variable lease payments not included in the measurement of the lease liability are classified as cash flows from operating activities. Cash payments for the principal portion of the lease liability are included in financing activities and cash payments for the interest paid portion of the lease liability are included in debt issue costs, interest, guarantee fees and other associated fees paid in financing activities.

 

The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets. The Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

 

18.            Operating segments

 

The Company is engaged in the mining, exploration and development of mineral properties, primarily in Brazil, through which it produces and supplies vanadium products. The segments presented reflect the way in which the Company’s management reviews its business performance. Operating segments are reported in a manner consistent with the internal reporting provided to executive management who act as the chief operating decision-maker. Executive management is responsible for allocating resources and assessing performance of the operating segments. The Company’s operating segments are its sales & trading, mine properties, corporate and exploration and evaluation properties (“E&E properties”) segments.

 

d)                  Critical judgements and estimation uncertainties

 

The preparation of consolidated financial statements in conformity with IFRS requires the Company’s management to make judgments, estimates and assumptions about the carrying amount of its assets and liabilities that are not readily apparent from other sources. These estimates and assumptions are based on management’s best knowledge of the relevant facts and circumstances taking into account previous experience, but actual results may differ from the amounts included in the consolidated financial statements.

 

The following are the critical judgments and areas involving estimates that management has made in the process of applying the Company’s accounting policies and that have the most significant effect on the amounts recognized in the consolidated financial statements.

 

1.                   Determination of mineral reserve and resource estimates

 

The estimates for mineral reserves and mineral resources are determined based on a professional evaluation using accepted international standards for the assessment of mineral reserves and resources. The assessment involves geological and geophysical studies and economic data and the reliance on a number of assumptions. The estimates of the reserves and resources may change based on additional knowledge gained subsequent to the initial assessment. This may include additional data available from continuing exploration, results from the reconciliation of actual mining production data against the original reserve and resource estimates, or the impact of economic factors such as changes in the price of commodities or the cost of components of production.

 

A number of accounting estimates are impacted by the mineral reserve and resource estimates:

 

·                      Capitalization and depreciation of stripping costs;

 

·                      Determination of the useful life of mine properties, plant and equipment and measurement of the depreciation expense;

 

·                      Impairment analysis of non-financial assets including evaluation of estimated future cash flows of CGUs; and

 

·                      Estimates of the timing of outlays for environmental rehabilitation obligations.

 

18

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

A change in the original estimate of reserves and resources could have a material effect in the future on the Company’s financial position and results of operations.

 

2.                   Valuation of mine properties, plant and equipment, development properties, exploration and evaluation properties and other intangible assets

 

The Company carries its mine properties, plant and equipment, development properties, exploration and evaluation properties and other intangible assets at cost less accumulated depreciation and any provision for impairment.

 

The Company undertakes a review of the carrying values of mine properties, plant and equipment, development properties, exploration and evaluation properties and other intangible assets whenever events or changes in circumstances indicate that their carrying values may exceed their estimated net recoverable amounts determined by reference to estimated future operating results and, for mine properties, discounted net future cash flows.

 

In undertaking the assessment of whether impairment indicators exist, management is required to apply significant judgment in assessing whether changes to certain external and internal factors would be considered an indicator of impairment. Internal and external factors, such as (i) changes in future production and sales volumes; (ii) changes in quantity and grade of the recoverable reserves and resources; (iii) changes in vanadium prices, capital and operating costs; and (iv) changes in discount rates, are evaluated by management in determining whether there are any indicators of impairment. Estimated quantities and grades of the recoverable reserves and resources are based on information compiled by qualified persons (management’s experts). No impairment indicators were noted.

 

An impairment loss is recognized when the carrying value of those assets is not recoverable. In undertaking this review, management of the Company is required to make significant estimates of, amongst other things, future production and sale volumes, reserve and resource quantities, metal prices, future capital and operating costs, discount rates and reclamation costs to the end of the mine’s life. These estimates are subject to various risks and uncertainties which may ultimately have an effect on the expected recoverability of the carrying values of the Company’s mine properties, plant and equipment (see note 9) and other intangible assets (see note 8).

 

3.                   Estimates of provisions for environmental rehabilitation

 

The Company has obligations for environmental rehabilitation related to its mine and development properties. The future obligations for mine closure activities are estimated by the Company using mine closure plans or other similar studies which outline the requirements that will be carried out to meet the obligations. Because the obligations are dependent on the Brazilian laws and regulations under which the mines operate, the requirements could change as a result of amendments in the laws and regulations relating to environmental protection and other legislation affecting resource companies.

 

As the estimate of obligations is based on future expectations, a number of estimates and assumptions are made by management in the determination of environmental rehabilitation provision. The environmental rehabilitation provisions are more uncertain the further into the future the mine closure activities are to be carried out.

 

The Company’s policy for recording reclamation and other closure provisions is to establish provisions for future costs based on the present value of the future cash flows required to satisfy the environmental obligations. This provision is updated as the estimate for future closure costs change. The amount of the present value of the provision is added to the cost of the related development asset or mine property and will be depreciated over the life of the mine. The provision is accreted to its future value over the life of mine through a charge to finance costs in the consolidated statement of income (loss) and comprehensive income (loss). Refer to note 13(c).

 

19

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

4.                   Determination of functional currency

 

The functional currency of the Company and its subsidiaries is the currency of the primary economic environment in which the entity operates. In accordance with IAS 21, The Effects of Changes in Foreign Exchange Rates, management determined that the functional currency of the Company and the Company’s Irish and U.S. subsidiaries is the U.S. dollar. The functional currency of the Company’s primary Brazilian operating subsidiary is the Brazilian real. Refer to note 3 for details of the changes in functional currencies.

 

The determination of functional currency may involve certain judgments to determine the primary economic environment. The Company reconsiders the functional currency of its entities if there is a change in events and conditions which determine the primary economic environment.

 

5.                   Current and deferred taxes

 

The Company is subject to income and other taxes in various jurisdictions. Significant judgment is required in determining the Company’s provisions for taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Company recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. The determination of the Company’s income and other tax liabilities requires interpretation of complex laws and regulations often involving multiple jurisdictions. The Company’s interpretation of taxation law as applied to transactions and activities may not coincide with the interpretation of the tax authorities. All tax filings are subject to audit and potential reassessment subsequent to the financial statement reporting period. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the tax related accruals and deferred income tax provisions in the period in which such determination is made. Any estimates for value added and withholding taxes have been included in accounts payable and accrued liabilities. Based on Vanádio de Maracás S.A ‘s history of taxable profits and management’s assessment of the likelihood of future taxable profits, a deferred income tax asset was recognized at December 31, 2020 for non-capital losses in Brazil (refer to note 17).

 

During the year ended December 31, 2020, the Company entered into a binding agreement with one of its susbsidiaries as a distributor of vanadium products. The Company expects future taxable income based on the approved business plans and budgets from the distribution business as well as taxable interest income received from intercompany loans and therefore recognized a deferred income tax asset in Canada (refer to note 17).

 

6.                   Contingencies

 

Refer to notes 13 and 20.

 

7.                   COVID-19

 

The Company is conscious of the rapid expansion of the COVID-19 pandemic and the evolving global implications. To date, there have been no significant disruptions to the Company’s operations, supply chain or on its shipment of products from the Maracás Menchen Mine. However, the Company cautions that the potential future impact of any restrictions on the Company’s operations, supply chain, sales efforts and logistics is currently unknown but could be significant.

 

20

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

5)                  Amounts receivable

 

 

 

December 31,
2020

 

December 31,
2019

 

Trade receivables (note 22(b))

 

$

13,749

 

$

—

 

Current taxes recoverable - Brazil

 

5,214

 

5,920

 

Current taxes recoverable - Other

 

92

 

41

 

Other receivables

 

42

 

189

 

Total

 

$

19,097

 

$

6,150

 

 

6)                  Inventory

 

 

 

December 31,
2020

 

December 31,
2019

 

Finished products

 

$

25,087

 

$

5,637

 

Work-in-process

 

775

 

2,018

 

Stockpiles

 

997

 

1,413

 

Warehouse materials

 

8,478

 

8,913

 

Total

 

$

35,337

 

$

17,981

 

 

During the year ended December 31, 2020, the Company recognized a net realizable value write-down of $174 for warehouse materials (year ended December 31, 2019 — $nil). At December 31, 2020, the net realizable value write-down was $3 for finished products and $174 for warehouse materials (note 24) (December 31, 2019 — $nil and $nil). As inventory is sold, previously recorded net realizable value write-downs are reclassified from inventory write-down to direct mine and mill costs or product acquisition costs as appropriate (note 24).

 

7)                  Vanadium products

 

The Company’s off-take agreement with its former off-take partner expired at the end of April 2020. In connection with this and with the Company managing its own sales activities from May 1, 2020 onwards, the Company’s vanadium products are accounted for as finished products inventory (note 6) effective from May 1, 2020. An assessment of net realizable value was performed on the transfer into inventory at May 1, 2020 that resulted in a write-down of $649.

 

Prior to this, vanadium products were measured at fair value based on Level 2 fair value inputs. During the year ended December 31, 2020, the Company recognized other gains (losses) of $1,636 (year ended December 31, 2019 — $(1,360)), relating to realized and unrealized gains and losses on the purchases and sales of vanadium products.

 

8)                  Other intangible assets

 

During the year ended December 31, 2020, the Company acquired certain patent families (the “intellectual property”) out of an assignment for the benefit of creditors under Massachusetts, U.S.A., law. The acquisition was completed through an asset purchase agreement, with the Company issuing 2,518 common shares and 3,622 common share purchase warrants as consideration. The transaction closed on December 7, 2020, with the common shares valued at $2,243 (refer to note 14) and the common share purchase warrants valued at $2,123 (refer to note 15) for a total consideration of $4,366.

 

At December 31, 2020, the remaining estimated useful life is 10 years.

 

21

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Intellectual
Property

 

Total

 

COST

 

 

 

 

 

Balance at December 31, 2018 and 2019

 

$

—

 

$

—

 

Additions

 

4,366

 

4,366

 

Balance at December 31, 2020

 

$

4,366

 

$

4,366

 

ACCUMULATED DEPRECIATION

 

 

 

 

 

Balance at December 31, 2018 and 2019

 

$

—

 

$

—

 

Depreciation

 

—

 

—

 

Balance at December 31, 2020

 

$

—

 

$

—

 

NET BOOK VALUE

 

 

 

 

 

At December 31, 2019

 

$

—

 

$

—

 

At December 31, 2020

 

$

4,366

 

$

4,366

 

 

9)                  Mine properties, plant and equipment

 

At December 31, 2020 and December 31, 2019, the Company’s economic interest in the Maracás Menchen Mine totaled 99.94%. The remaining 0.06% economic interest is held by Companhia Baiana de Pesquisa Mineral (“CBPM”) owned by the state of Bahia. CBPM retains a 3% net smelter royalty (“NSR”) in the Maracás Menchen Mine. The property is also subject to a royalty of 2% on certain operating costs under the Brazilian Mining Act. Under a separate agreement, Anglo Pacific Plc receives a 2% NSR in the Maracás Menchen Mine.

 

The net book value of the Company’s mine properties, plant and equipment at December 31, 2020 by geographic location is: Brazil — $131,240 (December 31, 2019 — $170,243); Canada — $17,725 (December 31, 2019 — $20,251).

 

 

 

Office and
Computer
Equipment

 

Vehicles

 

Mine
Properties

 

Machinery
and
Equipment

 

Construction
In Progress

 

Total

 

COST

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

 

$

887

 

$

349

 

$

94,067

 

$

169,882

 

$

5,043

 

$

270,228

 

Additions

 

234

 

—

 

8,475

 

6,282

 

26,597

 

41,588

 

Tax credits

 

—

 

—

 

—

 

(2,678

)

—

 

(2,678

)

Disposals

 

(98

)

—

 

—

 

(2,686

)

—

 

(2,784

)

Reclassifications

 

—

 

—

 

—

 

21,319

 

(21,319

)

—

 

Effects of changes in foreign exchange rates

 

(43

)

(13

)

(1,682

)

(6,258

)

(1,225

)

(9,221

)

Balance at December 31, 2019

 

$

980

 

$

336

 

$

100,860

 

$

185,861

 

$

9,096

 

$

297,133

 

Additions

 

115

 

—

 

9,049

 

2,421

 

8,174

 

19,759

 

Reclassifications

 

—

 

—

 

—

 

8,323

 

(8,323

)

—

 

Effects of changes in foreign exchange rates

 

(176

)

(75

)

(18,465

)

(42,862

)

(639

)

(62,217

)

Balance at December 31, 2020

 

$

919

 

$

261

 

$

91,444

 

$

153,743

 

$

8,308

 

$

254,675

 

 

22

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Office and
Computer
Equipment

 

Vehicles

 

Mine
Properties

 

Machinery
and
Equipment

 

Construction
In Progress

 

Total

 

ACCUMULATED DEPRECIATION

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

 

$

527

 

$

349

 

$

19,093

 

$

68,574

 

$

—

 

$

88,543

 

Depreciation

 

102

 

—

 

6,400

 

17,119

 

—

 

23,621

 

Disposals

 

(98

)

—

 

—

 

(2,686

)

—

 

(2,784

)

Effects of changes in foreign exchange rates

 

(8

)

(13

)

235

 

(2,955

)

—

 

(2,741

)

Balance at December 31, 2019

 

$

523

 

$

336

 

$

25,728

 

$

80,052

 

$

—

 

$

106,639

 

Depreciation

 

89

 

—

 

5,939

 

16,136

 

—

 

22,164

 

Effects of changes in foreign exchange rates

 

(89

)

(75

)

(4,727

)

(18,202

)

—

 

(23,093

)

Balance at December 31, 2020

 

$

523

 

$

261

 

$

26,940

 

$

77,986

 

$

—

 

$

105,710

 

NET BOOK VALUE

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2019

 

$

457

 

$

—

 

$

75,132

 

$

105,809

 

$

9,096

 

$

190,494

 

At December 31, 2020

 

$

396

 

$

—

 

$

64,504

 

$

75,757

 

$

8,308

 

$

148,965

 

 

10)           Leases

 

At December 31, 2020, the Company did not have any right-of-use assets or lease liabilities.

 

 

 

Year ended

 

 

 

December 31,
2020

 

December 31,
2019

 

Recognized in the consolidated statements of income (loss) and comprehensive income (loss):

 

 

 

 

 

Expenses relating to short-term leases

 

$

12,707

 

$

13,651

 

 

 

 

 

 

 

Recognized in the consolidated statements of cash flows:

 

 

 

 

 

Total cash outflow for leases

 

$

10,916

 

$

12,546

 

 

11)           Accounts payable and accrued liabilities

 

 

 

December 31,
2020

 

December 31,
2019

 

Trade payables

 

$

32

 

$

67,325

 

Accounts payable

 

12,257

 

7,720

 

Accrued liabilities

 

2,572

 

2,363

 

Accrued financial costs

 

806

 

—

 

Other taxes

 

301

 

333

 

Total

 

$

15,968

 

$

77,741

 

 

12)           Debt

 

 

 

December 31,
2020

 

December 31,
2019

 

Total debt

 

$

24,788

 

$

—

 

 

23

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

December 31,
2019

 

Cash flows
Proceeds

 

Non-cash
Foreign
exchange
movement

 

December 31,
2020

 

Total debt

 

$

—

 

$

24,788

 

$

—

 

$

24,788

 

Total liabilities from financing activities

 

$

—

 

$

24,788

 

$

—

 

$

24,788

 

 

 

 

December 31,
2018

 

Cash flows
Repayment

 

Non-cash
Foreign
exchange
movement

 

December 31,
2019

 

Total debt(1)

 

$

92,812

 

$

(92,812

)

$

—

 

$

—

 

Total liabilities from financing activities

 

$

92,812

 

$

(92,812

)

$

—

 

$

—

 

 

(1)   The gross amount excludes unamortized deferred transaction costs.

 

Credit facilities

 

On March 18, 2020, the Company secured a $13,000 credit facility with a bank in Brazil. This facility was fully drawn down and proceeds of R$65,980 ($13,000) were received on March 20, 2020. This facility is due to be repaid as a lump sum payment on March 12, 2021, together with accrued interest at a rate of 3.35% per annum.

 

On March 24, 2020 the Company secured a $11,788 credit facility with a second bank in Brazil. This facility was fully drawn down and proceeds of R$60,000 ($11,788) were received on March 24, 2020. This facility is due to be repaid as a lump sum payment on March 18, 2021, together with accrued interest at a rate of 6.29% per annum.

 

Refer to note 25 for details of the settlement of the credit facilities subsequent to December 31, 2020.

 

Senior secured notes

 

On May 22, 2018, the Company completed a private placement of $150,000 aggregate principal amount of senior secured notes due in 2021 (the “Notes”). The Notes were callable in years 2 and 3 and had an interest rate of 9.25% per annum, paid on a semi-annual basis in arrears on December 1 and June 1 each year, beginning on December 1, 2018. The terms of the Notes allowed the Company to redeem all or part of the Notes at varying redemption prices and established certain restrictive covenants.

 

On January 28, 2019 and February 19, 2019, the Company completed the purchase and cancellation of $59,221 and $4,490 in aggregate principal amounts of Notes outstanding. The Notes were purchased at a price equal to 105.625% per principal amount of the Notes redeemed plus accrued and unpaid interest up to January 28, 2019 and February 15, 2019, respectively. On May 3, 2019, the Company made an excess cash flow offer to purchase all of its outstanding Notes at that time of $29,101 at a purchase price of 103% of the principal amount thereof plus accrued and unpaid interest to, but not including, the purchase date. The offer was required to be made in accordance with the terms of the Notes and following this offer, $6,736 of the Notes were repurchased and cancelled.

 

On June 10, 2019, the Company announced that it had elected to redeem the remaining outstanding Notes. The Notes were redeemed on July 8, 2019 at a price equal to 104.625% of the principal amount of the Notes plus accrued and unpaid interest to, but not including, the redemption date. The total amount paid was $23,606, including the principal amount of Notes outstanding of $22,365, following which, the balance of the Notes outstanding was $nil.

 

13)          Provisions

 

a)                  Provision for litigation claims

 

By their nature, contingencies will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events. The assessment of contingencies inherently involves the exercise of significant judgments and estimates of the outcome of future events.

 

24

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

The Company, through its subsidiaries, is party to legal proceedings in the ordinary course of its operations. The Company’s management, outside legal advisors, and other subject matter experts assess the potential outcome of these proceedings. Accordingly, the Company establishes provisions for future disbursements considered probable.

 

At December 31, 2020, based on developments in the respective hearings, the Company recognized a provision of $928 (December 31, 2019 — $1,189) primarily due to legal proceedings regarding labour matters. The outcome of each case remains dependent on the final judgment, which the Company does not expect to be delivered within the next 12 months. Refer to note 20.

 

b)                  Provision for environmental compensation

 

In accordance with the terms of the Company’s environmental license for its Maracás Menchen Mine, the Company recognized a provision for future social and environmental compensation. Following the direction of the Secretary of the Environment for the state of Bahia, Brazil, the Company will be required to fund social or environmental projects. At December 31, 2020, the Company recognized a provision of $368, with the full $368 expected to be incurred within the next 12 months (December 31, 2019 — $475 and $475, respectively).

 

c)                   Provision for closure and reclamation

 

The following table presents the reconciliation of the beginning and ending aggregate carrying amount of the provision for closure and reclamation associated with the retirement of the Company’s projects:

 

 

 

Maracás
Menchen
Mine

 

Currais
Novos
Tungsten

 

Total

 

Balance at December 31, 2018

 

$

4,712

 

$

565

 

$

5,277

 

Changes in estimated cash flows and discount rates

 

957

 

20

 

977

 

Accretion

 

116

 

13

 

129

 

Effect of foreign exchange

 

(207

)

(23

)

(230

)

Balance at December 31, 2019

 

$

5,578

 

$

575

 

$

6,153

 

Changes in estimated cash flows and discount rates

 

496

 

30

 

526

 

Accretion

 

149

 

13

 

162

 

Effect of foreign exchange

 

(1,338

)

(136

)

(1,474

)

Balance at December 31, 2020

 

$

4,885

 

$

482

 

$

5,367

 

 

The Company makes a provision for the future cost of rehabilitating mine sites and related production facilities on a discounted basis on the development of mines or installation of those facilities. The rehabilitation provision represents the present value of estimated future rehabilitation costs relating to mine sites. These provisions have been created based on the Company’s internal estimates. Assumptions, including an inflation rate of 3.25% (December 31, 2019 — 3.50%) and a nominal discount rate of 6.00% (December 31, 2019 — 6.50%), have been made which management believes are a reasonable basis upon which to estimate the future liability.

 

The provision for closure and reclamation of the Maracás Menchen Mine at December 31, 2020 is based on a total anticipated liability of R$45,671 ($8,787) (December 31, 2019 — R$43,863 ($10,882)) and is expected to be incurred between 2042 and 2046 (December 31, 2019 — between 2042 and 2046).

 

The provision for closure and reclamation of the Currais Novos Tungsten project at December 31, 2020 is based on an anticipated liability of approximately R$2,768 ($533) (December 31, 2019 — R$2,657 ($659)), with reclamation expected to be incurred between 2023 and 2027 (December 31, 2019 — between 2023 and 2027).

 

25

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

14)           Issued capital

 

a)                  Authorized

 

Unlimited common shares without par value.

 

b)                  Issued

 

 

 

Year ended
December 31, 2020

 

Year ended
December 31, 2019

 

 

 

Number of
Shares

 

Stated
Value

 

Number of
Shares

 

Stated
Value

 

Balance, beginning of the year

 

554,534

 

$

396,026

 

529,126

 

$

378,859

 

Exercise of warrants (note 15)

 

29,529

 

6,136

 

21,176

 

13,479

 

Exercise of share options (note 15)

 

805

 

626

 

3,248

 

2,062

 

Exercise of restricted share units (note 15)

 

403

 

1,183

 

984

 

1,626

 

Purchase consideration (note 8)

 

2,518

 

2,243

 

—

 

—

 

Balance, end of the year

 

587,789

 

$

406,214

 

554,534

 

$

396,026

 

 

15)           Equity reserves

 

Under the Company’s incentive share compensation plan, the Company has issued options and restricted share units (“RSUs”) approximating 1.38% of its issued and outstanding capital at December 31, 2020.

 

The Company applies the fair value method of accounting for share-based payment awards. The Company estimated the expected volatility using historical volatilities from the Company’s traded common shares when estimating the fair value of stock options granted, as it believes that this methodology best reflects the expected future volatility of its stock.

 

 

 

RSUs

 

Options

 

Warrants

 

 

 

 

 

Number

 

Value

 

Number

 

Weighted
average
exercise
price

 

Value

 

Number

 

Weighted
average
exercise
price

 

Value

 

Total
value

 

December 31, 2018

 

791

 

$

326

 

6,958

 

C$

0.82

 

$

4,030

 

146,202

 

C$

0.48

 

$

21,952

 

$

26,308

 

Share-based payments

 

—

 

1,050

 

—

 

—

 

—

 

—

 

—

 

—

 

1,050

 

Granted

 

1,017

 

1,878

 

370

 

3.04

 

637

 

—

 

—

 

—

 

2,515

 

Forfeited

 

(16

)

(11

)

—

 

—

 

—

 

—

 

—

 

—

 

(11

)

Exercised

 

(984

)

(1,626

)

(3,248

)

(0.52

)

(793

)

(37,616

)

(0.64

)

(4,771

)

(7,190

)

Expired

 

—

 

—

 

(933

)

(2.28

)

(1,154

)

(484

)

(0.65

)

(70

)

(1,224

)

December 31, 2019

 

808

 

$

1,617

 

3,147

 

C$

0.96

 

$

2,720

 

108,102

 

C$

0.42

 

$

17,111

 

$

21,448

 

Share-based payments

 

—

 

458

 

—

 

—

 

—

 

—

 

—

 

—

 

458

 

Granted

 

1,914

 

441

 

3,828

 

0.67

 

774

 

3,622

 

1.30

 

2,123

 

3,338

 

Exercised

 

(403

)

(1,183

)

(805

)

(0.70

)

(209

)

(26,793

)

(0.33

)

(2,320

)

(3,712

)

Expired

 

—

 

—

 

(200

)

(0.46

)

(47

)

(1,272

)

(0.65

)

(159

)

(206

)

Forfeited

 

(63

)

(4

)

(88

)

(0.67

)

(31

)

—

 

—

 

—

 

(35

)

December 31, 2020

 

2,256

 

$

1,329

 

5,882

 

C$

0.83

 

$

3,207

 

83,659

 

C$

0.49

 

$

16,755

 

$

21,291

 

 

During the year ended December 31, 2020, the Company recognized a share-based payment expense related to the grant and vesting of share options and RSUs of $1,638 (year ended December 31, 2019 — $3,554) for share options and RSUs granted to the Company’s directors, officers, employees and consultants. The total share-based payment expense was charged to operations.

 

26

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

During the year ended December 31, 2020, 23,996 warrants were exercised resulting in proceeds to the Company of $3,816, with a further 2,797 warrants surrendered as part of cashless exercises. 5,533 shares were issued in connection with a warrant exercise in 2019. In addition, 805 share options were exercised resulting in proceeds to the Company of $417.

 

During the year ended December 30, 2020, the Company granted 3,622 (year ended December 31, 2019 — nil) warrants with a weighted average exercise price of C$1.30. The estimated weighted average grant date fair value of the warrants was C$0.75 per warrant, as determined using the Black—Scholes valuation model and the following assumptions: risk free interest rate — 0.48%, expected life in years — 5, expected volatility — 88.0% and a foreign exchange rate of $1 equals C$1.2798.

 

During the year ended December 31, 2019, 26,709 warrants were exercised resulting in proceeds to the Company of $8,708, with a further 10,907 warrants surrendered as part of cashless exercises. In addition, 3,248 share options were exercised resulting in proceeds to the Company of $1,269.

 

a)                  RSUs

 

During the year ended December 31, 2020, the Company granted 1,914 RSUs to officers and employees of the Company and 63 RSUs were forfeited. These RSUs vest over time, with one-third of a grant of 1,799 RSUs vesting during each of the three month periods ending March 31, 2021, March 31, 2022 and March 31, 2023, and one-third of a grant of 115 RSUs vesting during each of the three month periods ending September 30, 2021, September 30, 2022 and September 30, 2023. The value of the vested RSUs includes the Company’s expected forfeiture rate of 0%. Upon vesting, the RSUs provide the holders with common shares of the Company.

 

During the year ended December 31, 2019, the Company granted 1,017 RSUs to officers and employees of the Company and 16 RSUs were forfeited. These RSUs vest over time, with one-third vesting on each of January 11, 2020, January 10, 2021 and January 10, 2022. The value of the vested RSUs includes the Company’s expected forfeiture rate of 0%. Upon vesting, the RSUs provide the holders with common shares of the Company.

 

b)                  Stock options

 

Range of prices

 

No. outstanding

 

No. exercisable

 

Weighted
average
remaining
life (years)

 

Weighted
average
exercise
price

 

Weighted
average
grant date
share price

 

C$

0.46 - 1.00

 

5,277

 

2,288

 

3.2

 

C$

0.61

 

C$

0.61

 

2.01 - 2.50

 

285

 

285

 

2.6

 

2.40

 

2.40

 

3.01 - 3.04

 

320

 

320

 

3.0

 

3.04

 

3.04

 

 

 

5,882

 

2,893

 

 

 

 

 

 

 

 

During the year ended December 30, 2020, the Company granted 3,828 (year ended December 31, 2019 — 370) share options to its directors, officers, employees and consultants with a weighted average exercise price of C$0.67.  750 of the share options vested immediately and are exercisable for a period of 5 years from the date of grant. The remainder vest over time, with one—third vesting during each of the three month periods ending March 31, 2021, March 31, 2022 and March 31, 2023. The estimated weighted average grant date fair value of the share options was C$0.48 per stock option, as determined using the Black—Scholes valuation model and the following assumptions: risk free interest rate — 0.74%, expected life in years — 5, expected volatility — 93.7%, expected dividends — 0% and expected forfeiture rate — 0%.

 

For the grant in the year ended December 31, 2019, the stock options vested immediately and are exercisable for a period of 5 years from the date of grant. The estimated weighted average grant date fair value of the stock options was C$2.29 per stock option, as determined using the Black—Scholes valuation model and the following assumptions: risk free interest rate — 1.89%, expected life in years — 5, expected volatility — 94.2%, expected dividends — 0% and expected forfeiture rate — 0%.

 

27

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

The remaining weighted average contractual life of options outstanding at December 31, 2020 was 3.2 years (December 31, 2019 — 1.9 years).

 

c)                   Warrants and broker warrants

 

No.
outstanding

 

No.
exercisable

 

Grant
Date

 

Expiry
Date

 

Exercise
price

 

Expected
volatility

 

Expected
life (years)

 

Expected
dividend
yield

 

Risk-free
Interest
rate

 

25,731

 

25,731

 

29-Jan-16

 

28-Jan-21

 

C$

0.29

 

129

%

5.00

 

0

%

0.67

%

39,342

 

39,342

 

2-Mar-16

 

2-Mar-21

 

C$

0.29

 

132

%

5.00

 

0

%

0.68

%

3,488

 

3,488

 

1-Dec-17

 

1-Dec-22

 

C$

1.15

 

93

%

5.00

 

0

%

1.63

%

11,476

 

11,476

 

13-Dec-17

 

13-Dec-22

 

C$

1.15

 

93

%

5.00

 

0

%

1.65

%

3,622

 

3,622

 

7-Dec-20

 

8-Dec-25

 

C$

1.30

 

88

%

5.00

 

0

%

0.48

%

83,659

 

83,659

 

 

 

 

 

C$

0.49

 

 

 

 

 

 

 

 

 

 

16)          Earnings (loss) per share

 

The weighted average number of basic and diluted shares outstanding for all periods presented in the consolidated statements of income (loss) and comprehensive income (loss) have been adjusted in order to reflect the effect of the share consolidation that was approved on March 1, 2021 and completed on March 4, 2021 (refer to note 25).

 

The total number of shares issuable from options, warrants and RSUs that are excluded from the computation of diluted earnings (loss) per share because their effect would be anti-dilutive was 1,919 for the year ended December 31, 2020 (year ended December 31, 2019 — 11,206).

 

17)          Taxes

 

a)                  Tax (expense) recovery

 

 

 

Year ended

 

 

 

December 31,
2020

 

December 31,
2019

 

Income tax expense

 

$

(139

)

$

(864

)

Deferred income tax (expense) recovery

 

(823

)

(2,612

)

Total

 

$

(962

)

$

(3,476

)

 

The major items causing the Company’s income tax expense to differ from the Canadian combined federal and provincial statutory rate of 26.50% (2019 — 26.50%) were:

 

 

 

Year ended

 

 

 

December 31,
2020

 

December 31,
2019

 

Net income (loss) before tax

 

$

7,723

 

$

(23,494

)

Expected income tax (expense) recovery based on statutory rate

 

(2,047

)

6,226

 

Adjustments to expected income tax (expense) recovery:

 

 

 

 

 

Permanent differences and other

 

(3,846

)

(2,870

)

Tax effect of unrecognized temporary differences and tax losses

 

1,873

 

(6,671

)

Tax incentives and tax loss benefit not previously recognized

 

1,019

 

420

 

Effect of tax rates in foreign jurisdictions

 

290

 

(761

)

Foreign exchange

 

1,749

 

180

 

Income tax expense

 

$

(962

)

$

(3,476

)

 

28

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

b)                  Changes in deferred tax assets and liabilities

 

 

 

Year ended

 

 

 

December 31,
2020

 

December 31,
2019

 

Net deferred income tax asset, beginning of the year

 

$

10,571

 

$

13,863

 

Deferred income tax (expense)

 

(823

)

(2,612

)

Effect of foreign exchange

 

(2,570

)

(680

)

Net deferred income tax asset, end of the year

 

$

7,178

 

$

10,571

 

 

c)                   Deferred income tax balances

 

 

 

December 31,
2020

 

December 31,
2019

 

Brazil

 

 

 

 

 

Recognized deferred tax assets

 

 

 

 

 

Non-capital losses

 

$

16,505

 

$

21,946

 

Mine properties

 

777

 

828

 

 

 

 

 

 

 

Recognized deferred tax liabilities:

 

 

 

 

 

Transitional tax regime

 

$

(8,721

)

$

(9,221

)

Provisions

 

(3,717

)

(2,982

)

 

 

4,844

 

10,571

 

Canada

 

 

 

 

 

Recognized deferred tax assets:

 

 

 

 

 

Non-capital losses

 

$

2,334

 

$

—

 

Net deferred income tax asset

 

$

7,178

 

$

10,571

 

 

Deferred tax assets have not been recognized in respect of the following deductible temporary differences:

 

 

 

December 31,
2020

 

December 31,
2019

 

Canada

 

 

 

 

 

Non-capital loss carry-forwards

 

$

52,658

 

$

68,131

 

Mine properties, plant and equipment

 

18,670

 

18,118

 

Capital losses and foreign exchange

 

11,992

 

7,991

 

Share issue costs

 

3,634

 

5,108

 

Ireland

 

 

 

 

 

Non-capital loss carry-forwards

 

$

7,720

 

$

1,906

 

Mine properties, plant and equipment

 

86

 

91

 

 

The Company has approximately $18,670 (December 31, 2019 — $18,118) of Canadian development expenditures and $777 (December 31, 2019 — $828) of development costs in Brazil at December 31, 2020, which under certain circumstances can be used to reduce the taxable income of future years.

 

The non-capital losses in Brazil and Ireland carry forward indefinitely. The non-capital losses in Canada expire as follows:

 

Expiry date

 

Amount

 

Expiry date

 

Amount

 

Expiry date

 

Amount

 

2032

 

$

2,749

 

2035

 

$

142

 

2038

 

$

11,251

 

2033

 

4,029

 

2036

 

2,739

 

2039

 

13,654

 

2034

 

16,595

 

2037

 

3,826

 

2040

 

7

 

 

 

 

 

 

 

 

 

 

 

$

54,992

 

 

29

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

Deferred tax assets have only been recognized to the extent of the value of the deferred tax liabilities because it is not probable that the remaining temporary difference will reverse in the foreseeable future and that taxable profit will be available against which the tax benefits can be utilized.

 

18)           Related party transactions

 

In accordance with IAS 24, key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company directly or indirectly, including any directors (executive and non-executive) of the Company. One of the directors, Ms. Koko Yamamoto, is a partner in an accounting firm that previously provided services to the Company. During the year ended December 31, 2020, an amount in accounting fees of $nil (year ended December 31, 2019 — $2) was billed and paid under normal payment terms.

 

During the year ended December 31, 2020, 16,022 shares were issued to funds managed by Arias Resource Capital Management LP (the “ARC Funds”), 5,533 in connection with a warrant exercise in 2019  and 10,489 in connection with a warrant exercise in 2020 (refer to note 15). Refer to note 25 for details of warrant exercises subsequent to December 31, 2020.

 

The remuneration of directors and other members of key management personnel during the period was as follows:

 

 

 

Year ended

 

 

 

December 31,
2020

 

December 31,
2019

 

Short-term benefits

 

$

2,147

 

$

4,585

 

Share-based payments

 

1,275

 

2,775

 

Total

 

$

3,422

 

$

7,360

 

 

Refer to note 20 for additional commitments with management.

 

19)          Segmented disclosure

 

The Company has four operating segments: sales & trading, mine properties, corporate and exploration and evaluation properties (“E&E properties”). Corporate includes the corporate team that provides administrative, technical, financial and other support to all of the Company’s business units, as well as being part of the Company’s sales structure.

 

The Company recognized revenues from customers of $119,987 in the year ended December 31, 2020 (year ended December 31, 2019 — $105,107). Of the total revenues from customers, $64,512 is related to the Sales & trading segment (year ended December 31, 2019 — $nil) and $55,475 is related to the Mine properties segment (year ended December 31, 2019 — $105,107) (after the elimination of inter-segment transactions). In the eight month period from May 1, 2020 to December 31, 2020, the Company’s revenues are from transactions with multiple customers, including two customers who each represented more than 10% of revenues during that period. In the four month period to April 30, 2020 and in the year ended December 31, 2019, all of the Company’s revenues are from transactions with a single customer.

 

30

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Sales & trading

 

Mine
properties

 

Corporate

 

E&E
properties

 

Inter-segment
transactions &
other activities

 

Total

 

Year ended December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

64,512

 

$

126,750

 

$

74,553

 

$

—

 

$

(145,828

)(1)

$

119,987

 

Other gains (losses)

 

1,636

 

—

 

—

 

—

 

—

 

1,636

 

 

 

66,148

 

126,750

 

74,553

 

—

 

(145,828

)

121,623

 

Operating costs

 

(65,429

)

(93,524

)

(71,275

)

—

 

141,838

(1)

(88,390

)

Professional, consulting and management fees

 

(1,274

)

(3,086

)

(3,188

)

—

 

(707

)(2)

(8,255

)

Foreign exchange gain (loss)

 

44

 

(15,943

)

6,835

 

—

 

—

 

(9,064

)

Other general and administrative expenses

 

(473

)

(1,669

)

(1,082

)

—

 

(105

)(2)

(3,329

)

Share-based payments

 

—

 

—

 

(1,638

)

—

 

—

 

(1,638

)

Finance costs

 

(17

)

(1,325

)

(8

)

—

 

—

 

(1,350

)

Interest income

 

—

 

601

 

547

 

—

 

—

 

1,148

 

Exploration and evaluation costs

 

—

 

(2,958

)

—

 

(64

)

—

 

(3,022

)

 

 

(67,149

)

(117,904

)

(69,809

)

(64

)

141,026

 

(113,900

)

Net income (loss) before tax

 

(1,001

)

8,846

 

4,744

 

(64

)

(4,802

)

7,723

 

Income tax (expense)

 

(15

)

(124

)

—

 

—

 

—

 

(139

)

Deferred income tax (expense) recovery

 

—

 

(3,157

)

2,334

 

—

 

—

 

(823

)

Net income (loss)

 

$

(1,016

)

$

5,565

 

$

7,078

 

$

(64

)

$

(4,802

)

$

6,761

 

At December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

Total non-current assets

 

$

9

 

$

136,082

 

$

20,052

 

$

—

 

$

4,366

(2)

$

160,509

 

Total assets

 

$

49,010

 

$

213,619

 

$

106,779

 

$

25

 

$

(71,627

)(3)

$

297,806

 

Total liabilities

 

$

41,968

 

$

45,320

 

$

34,352

 

$

—

 

$

(70,998

)(1)

$

50,642

 

 

(1)              Elimination of inter-segment transactions.

 

(2)              Amounts relating to Largo Clean Energy Corp., which is not an operating segment.

 

(3)              Inter-segment transaction elimination of $76,498 partially offset by Largo Clean Energy Corp. total assets of $4,871.

 

31

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Sales &
trading

 

Mine
properties

 

Corporate

 

E&E
properties

 

Inter-segment
transactions &
other activities

 

Total

 

Year ended December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

—

 

$

105,107

 

$

—

 

$

—

 

$

—

 

$

105,107

 

Other gains (losses)

 

—

 

—

 

(1,360

)

—

 

—

 

(1,360

)

 

 

—

 

105,107

 

(1,360

)

—

 

—

 

103,747

 

Operating costs

 

—

 

(92,950

)

—

 

—

 

—

 

(92,950

)

Professional, consulting and management fees

 

—

 

(4,513

)

(5,466

)

—

 

—

 

(9,979

)

Foreign exchange loss

 

—

 

(1,551

)

(4,460

)

—

 

—

 

(6,011

)

Other general and administrative expenses

 

—

 

(859

)

(2,325

)

—

 

—

 

(3,184

)

Share-based payments

 

—

 

—

 

(3,554

)

—

 

—

 

(3,554

)

Finance costs

 

—

 

(211

)

(13,481

)

—

 

—

 

(13,692

)

Interest income

 

—

 

3,278

 

1,635

 

—

 

—

 

4,913

 

Exploration and evaluation costs

 

—

 

(2,491

)

—

 

(293

)

—

 

(2,784

)

 

 

—

 

(99,297

)

(27,651

)

(293

)

—

 

(127,241

)

Net income (loss) before tax

 

—

 

5,810

 

(29,011

)

(293

)

—

 

(23,494

)

Income tax recovery

 

—

 

(864

)

—

 

—

 

—

 

(864

)

Deferred income tax recovery

 

—

 

(2,612

)

—

 

—

 

—

 

(2,612

)

Net income (loss)

 

$

—

 

$

2,334

 

$

(29,011

)

$

(293

)

$

—

 

$

(26,970

)

At December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Total non-current assets

 

$

—

 

$

180,813

 

$

20,252

 

$

—

 

$

—

 

$

201,065

 

Total assets

 

$

—

 

$

239,402

 

$

118,202

 

$

57

 

$

—

 

$

357,661

 

Total liabilities

 

$

—

 

$

84,634

 

$

924

 

$

—

 

$

—

 

$

85,558

 

 

20)           Commitments and contingencies

 

At December 31, 2020, the Company was party to certain management and consulting contracts. Minimum commitments under the agreements are approximately $2,455 and all payable within one year. These contracts also require that additional payments of up to approximately $3,682 be made upon the occurrence of certain events such as change of control. As the triggering event has not occurred, the contingent payments have not been reflected in these consolidated financial statements.

 

In 2008, Largo agreed to sell 100% of its vanadium production under an off-take agreement which, following the election by the Company, expired at the end of April 2020. The Company has entered into a number of contracts with third party customers to deliver monthly quantities of the Company’s vanadium products. A significant proportion of the Company’s monthly vanadium production in 2021 has been committed.

 

The Company’s mining and exploration activities are subject to various federal, provincial and international laws and regulations governing the protection of the environment. These laws and regulations are continually changing and generally becoming more restrictive. The Company has made payments to comply with such laws and regulations.

 

The Company indemnifies its directors and officers against any and all claims or losses reasonably incurred in the performance of their service to the Company to the extent permitted by law. The Company has acquired and maintains liability insurance for its directors and officers.

 

The Company is committed to a minimum amount of rental payments under five leases of office space which expire between October 31, 2021 and December 31, 2023. Minimum rental commitments remaining under the

 

32

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

leases are approximately $598, including $277 due within one year. In addition, minimum rental commitments remaining under other short-term leases are approximately $12, all due within one year.

 

At the Company’s Maracás Menchen Mine, the Company has entered into purchase order contracts with remaining amounts due related to goods not received or services not rendered as of December 31, 2020 of $10,925.

 

The Company, through its subsidiaries, is party to legal proceedings in the ordinary course of its operations related to legally binding agreements with various third parties under supply contracts and consulting agreements. At December 31, 2020 two such proceedings were ongoing, each in Brazil. The first relates to a supply agreement for the Maracás Menchen Mine which was filed with the courts in October 2014. The amount claimed totals R$9,900 ($1,905), with a counterclaim filed by Vanádio for R$10,700 ($2,059). A provision of R$1,281 ($247) has been recognized at December 31, 2020 for the probable loss (December 31, 2019 - R$1,324 ($329)). The second proceeding relates to a consulting agreement dispute for which R$3,900 ($750) (December 31, 2019 - R$3,900 ($968)) has been claimed against two of the Company’s subsidiaries. No provision has been recognized for this proceeding. The Company and its subsidiaries are also party to legal proceedings regarding labour matters. A provision was recorded at December 31, 2019 for such proceedings in an amount of R$3,468 ($860). At December 31, 2020, the provision recognized was R$3,538 ($681). The outcome of these proceedings remains dependent on the final judgment, which the Company does not expect to be delivered within the next 12 months. Management does not expect the outcome of any of the remaining proceedings to have a materially adverse effect on the results of the Company’s financial position or results of operations. Should any losses result from the resolution of these claims and disputes, they will be charged to operations in the period that they are determined.

 

21)           Capital management

 

The Company is a production stage entity with one operating asset in Brazil. The Company manages its capital to ensure that it will be able to continue to meet its financial and operational strategies and obligations, whilst maximizing the return to shareholders.

 

In the management of capital, the Company includes the components of shareholders’ equity and debt. The Company manages the capital structure and makes adjustments thereto in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust its capital structure, the Company may attempt to issue new shares, acquire or dispose of assets, attempt to obtain additional debt financing or repay debt facilities.

 

There were no changes in the Company’s capital management strategy during the year ended December 31, 2020 compared to the previous year.

 

22)           Financial instruments

 

Financial assets and financial liabilities at December 31, 2020 and December 31, 2019 were as follows:

 

 

 

December 31,
2020

 

December 31,
2019

 

Cash

 

$

79,145

 

$

127,499

 

Restricted cash

 

—

 

76

 

Amounts receivable

 

13,791

 

189

 

Accounts payable and accrued liabilities

 

15,968

 

77,741

 

Debt

 

24,788

 

—

 

 

Refer to the liquidity risk discussion below regarding liabilities.

 

The Company’s risk exposures and the impact on the Company’s financial instruments are summarized below. There have been no changes in the risks, objectives, policies and procedures from the previous year.

 

33

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

a)                  Fair value

 

IFRS requires that the Company disclose information about the fair value of its financial assets and liabilities. Fair value estimates are made based on relevant market information and information about the financial instrument.

 

These estimates are subjective in nature and involve uncertainties in significant matters of judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect these estimates.

 

The fair value hierarchy categorizes into three levels the inputs to valuation techniques used to measure fair value.  The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs).

 

·                       Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.

 

·                       Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly such as those derived from prices.

 

·                       Level 3 inputs are unobservable inputs for the asset or liability.

 

At December 31, 2020 and December 31, 2019, trade receivables with the Company’s former off-take partner are classified as financial assets at FVTPL and are measured at fair value. The valuation of these trade receivables is classified within Level 2 of the fair value hierarchy as they were measured using observable vanadium market transaction data as reported by a recognized provider of global metal prices. The valuation of trade receivables with the Company’s former off-take partner at December 31, 2019 resulted in a liability position. Accordingly, this balance was classified as trade payables (refer to note 11).

 

The carrying amounts for cash, restricted cash, other trade receivables and amounts receivable, accounts payable and accrued liabilities (excluding trade payables) and debt in the consolidated statements of financial position approximate fair values because of the limited term of these instruments. Refer to note 25 for details of the settlement of debt subsequent to December 31, 2020.

 

There have been no changes in the classification of financial instruments in the fair value hierarchy since December 31, 2019. The Company does not have any financial instruments measured using Level 3 inputs. The Company does not offset financial assets with financial liabilities and there were no transfers between Level 1 and Level 2 input financial instruments.

 

b)                  Credit risk

 

The Company’s credit risk is primarily attributable to cash and amounts receivable.

 

The Company minimizes its credit risk with respect to cash by placing its funds on deposit with the highest rated banks in Canada, Ireland and Brazil. Financial instruments included in amounts receivable consist primarily of receivables from unrelated companies. Sales to customers outside of Brazil are protected either by the Company’s credit insurance policies, which establishes credit limits for each customer, or by the Company requiring letters of credit or up-front payment prior to delivery occurring.

 

Of the total trade receivables balance of $13,749, $7,389 relates to customers in Brazil, which are not covered by the Company’s credit insurance policies. These three customers are predominantly AAA rated companies in Brazil. The Company applies the IFRS 9 simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance for all trade receivables.

 

To measure expected credit losses, trade receivables are grouped based on risk characteristics and due dates. At December 31, 2020, no amounts are past due and in the year-ended December 31, 2020, the Company has not experienced any credit losses. At December 31, 2020, the loss allowance for trade receivables was

 

34

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

determined to be $51 (December 31, 2019 — $nil) and is recognized as a component of finance costs (note 24). There have been no write offs of trade receivables.

 

c)                   Liquidity risk

 

The following table details the Company’s expected remaining contractual cash flow requirements at December 31, 2020 for its financial liabilities with agreed repayment periods.

 

 

 

Less than
6 months

 

6 months
to 1 year

 

1 to 3 years

 

Over 3 years

 

Accounts payable and accrued liabilities (note 11)

 

$

15,968

 

$

—

 

$

—

 

$

—

 

Debt (note 12)

 

24,788

 

—

 

—

 

—

 

 

 

$

40,756

 

$

—

 

$

—

 

$

—

 

 

The Company’s principal sources of liquidity are its cash flow from operating activities and cash of $79,145 (December 31, 2019 — $127,499). Refer to note 25 for details of the settlement of debt subsequent to December 31, 2020.

 

d)                  Market risk

 

Interest rate risk

 

The Company’s exposure to a rise in interest rates is limited to that portion of its total debt that is subject to floating interest rates. At December 31, 2020, the Company’s debt is subject to fixed interest rates and the Company does not have any exposure to floating interest rates.

 

Foreign currency risk

 

At December 31, 2020, the Company’s outstanding debt is 100% denominated in U.S. dollars (December 31, 2019 — no outstanding debt facilities).

 

The impact of fluctuations in foreign currency on cash balances and debt relates primarily to fluctuations between the U.S. dollar, the Canadian dollar, the Brazilian real and the Euro. At December 31, 2020 the Company’s U.S. dollar functional currency entities had cash denominated in Canadian dollars and Euros and the Company’s Brazilian real functional currency entities had cash and debt denominated in U.S. dollars.

 

A 5% change in the value of the Canadian dollar and the Euro relative to the U.S. dollar would affect the value of these cash balances at December 31, 2020 by approximately $842. A 5% change in the value of the Brazilian real relative to the U.S. dollar would affect the value of Brazilian real cash balances by approximately $292.

 

Price risk

 

The Company does not have any financial instruments with significant exposure to price risk. Following the recognition of trade receivables on the recognition of revenue, there is no significant remeasurement related to price risk. Previously, the Company’s only financial instrument that was susceptible to price risk was its trade receivables /  payables with its former off-take partner, which could vary with the market price of vanadium for products sold that had not yet had the final selling price determined in accordance with the off-take agreement in force at the time of sale. At December 31, 2020 all amounts had the final selling price determined.

 

35

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

23)          Revenues

 

 

 

Year ended

 

 

 

December 31,
2020

 

December 31,
2019

 

Vanadium sales from contracts with customers

 

$

121,008

 

$

207,928

 

Re-measurement of trade receivables / payables

 

(1,021

)

(102,821

)

Total

 

$

119,987

 

$

105,107

 

 

24)          Expenses

 

 

 

Year ended

 

 

 

December 31,
2020

 

December 31,
2019

 

Operating costs:

 

 

 

 

 

Direct mine and production costs

 

$

48,929

 

$

63,156

 

Conversion costs

 

1,976

 

—

 

Product acquisition costs

 

10,459

 

—

 

Royalties

 

7,107

 

5,947

 

Distribution costs

 

2,269

 

—

 

Inventory write-down

 

177

 

—

 

Depreciation and amortization

 

17,473

 

23,847

 

 

 

$

88,390

 

$

92,950

 

Other general and administrative expenses:

 

 

 

 

 

Shareholder and regulatory

 

$

245

 

$

850

 

Travel

 

203

 

824

 

Donations

 

874

 

221

 

Occupancy

 

282

 

255

 

Information technology

 

307

 

64

 

Technology licenses and costs

 

98

 

—

 

Amortization

 

34

 

24

 

Office and other

 

1,286

 

946

 

 

 

$

3,329

 

$

3,184

 

Finance costs:

 

 

 

 

 

Interest expense

 

$

1,137

 

$

6,800

 

Accretion

 

162

 

6,892

 

Loss allowance for trade receivables

 

51

 

—

 

 

 

$

1,350

 

$

13,692

 

Employee compensation amounts included in the consolidated statements of income (loss):

 

 

 

 

 

Compensation

 

$

4,554

 

$

5,846

 

Share-based payments

 

1,638

 

3,554

 

 

 

$

6,192

 

$

9,400

 

 

25)          Subsequent events

 

Settlement of debt

 

On February 3, 2021, the Company completed the settlement of the outstanding credit facilities through the repayment in full of the outstanding principal amount of $24,788. Interest of $891 and a break fee of $74 were also paid as part of the settlement.

 

36

 

LARGO RESOURCES LTD.

 

Expressed in thousands / 000’s of U.S. dollars and shares (except per share information)

 

NOTES TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

 

Exercise of warrants

 

Subsequent to December 31, 2020, and prior to the share consolidation, 56,912 warrants were exercised resulting in proceeds to the Company of $3,017, with a further 8,092 warrants surrendered as part of cashless exercises. Included in this were exercises of 54,586 warrants by the ARC Funds for 46,497 shares, including 8,089 warrants surrendered as part of this cashless exercise.

 

Share consolidation

 

On March 1, 2021, the consolidation of the Company’s issued and outstanding common shares on the basis of up to one post-consolidation common share for every 10 pre-consolidation common shares was approved by the Company’s shareholders at a special meeting of shareholders.

 

On March 4, 2021, the Company completed the consolidation of its common shares on the basis of one post-consolidation common share for every 10 pre-consolidation common shares. This also includes RSUs, stock options and warrants of the Company. Any quantity relating to these instruments for 2020 and 2019 and up to March 4, 2021 or any per unit price such as exercise prices disclosed throughout the consolidated financial statements have not been retrospectively adjusted for the share consolidation except for the weighted average number of shares outstanding used in the calculation of basic and diluted earnings (loss) per share, which have been retrospectively adjusted to give effect to the share consolidation as required by IAS 33, Earnings per share. Consequently, the basic and diluted earnings (loss) per share for the periods presented have been retrospectively adjusted.

 

The effect of the share consolidation on the issued and outstanding number of common shares, RSUs, stock options and warrants at December 31, 2020 is as follows:

 

 

 

Balance before
consolidation

 

Balance after
consolidation

 

Common shares

 

587,789

 

58,779

 

RSUs

 

2,256

 

226

 

Stock options

 

5,882

 

588

 

Warrants

 

83,659

 

8,366

 

 

37

Exhibit 99.70

 

FORM 13-502F1 CLASS 1AND CLASS 3B REPORTING ISSUERS-PARTICIPATION FEE Title: Chief Financial Officer Reporting Issuer Name: Largo Resources Ltd. End date of previous financial year: December 31, 2020 D Class 3B reporting issuer Type of Reporting Issuer: Class 1 reporting issuer Highest Trading Marketplace: _T_S_X ......, (refer to the definition of "highest trading marketplace" under OSC Rule 13-502 Fees) Market value of listed or quoted eauity securities: (in Canadian Dollars-refer to section 7.1 of OSC Rule 13-502 Fees) Equity Symbol LGO 1•t Specified Trading Period (dd/mm/yy) (refer to the definition of "specified trading period" under OSC Rule 13-502 Fees) 01/01/20 to 31/03/20 -------Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace $0.7 (i) Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period 562,975,760 (ii) $_3_94-'-,0_8--'3,_03_2 (A) Market value of class or series (i) X (ii) lad Specified Trading Period (dd/mm/yy) (refer to the definition of "specified trading period" under OSC Rule 13-502 Fees) 01/04/20 ----to 30/06/20 MANAGEMENT CERTIFICATION I, Emest Cleave an officer of the reporting issuer noted below have examined this Form 13-502Fl (the Form) being submitted hereunder to the Ontario Securities Commission and certify that to my knowledge, having exercised reasonable diligence, the information provided in the Form is complete and accurate. (s) wEmest CleavewMarch 11, 2021 Name: Emest CleaveDate:

GRAPHIC

 

Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace $.....;;0,;.;;;.8....;_4 (iii) Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period _5_63....:..,7_8_1..:..1..,_6_0 (iv) Market value of class or series (iii) x (iv) $473,576,174.40 (B) 3rd Specified Trading Period (dd/mm/yy) (refer to the definition of "specified trading period'' under OSC Rule 13-502 Fees) 01/07/20 to 30/09/20 -------Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace $ 1.1 (v) Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period 563,781,160 (vi) Market value of class or series (v) x (vi) $_6_20....:..1.,_5 ,9,'--27_6 (C) 4th Specified Trading Period (ddlmm/yy) (refer to the definition of "specified trading period" under OSC Rule 13-502 Fees) to 31/12/20 01/10/20 -------Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace 1.38 (vii) Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period 587,789,389 (viii) (vii) X (viii) $811,149,356.82 Market value of class or series (D) Specified Trading Period (dd/mm/yy) (if applicable - refer to the definition of "specified trading period" under OSC Rule 13-502 Fees) to-------Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace s. (ix) (x) Number of securities in the class or series of such

GRAPHIC

 

security outstanding at the end of the last trading day of the specified trading period Market value of class or series (ix) x (x) $ (E) Average Market Value of Class or Series (Calculate the simple average of the market value of the class or series of security for each applicable specified trading period (i.e. A through E above)) $_5_74....:..,7_4_1"--,9 9_.8_1 (1) (Repeat the above calculation for each other class or series of equity securities of the reporting issuer (and a subsidiary pursuant to paragraph 2.8(1)(c) ofOSC Rule 13-502 Fees, if applicable) that was listed or quoted on a marketplace at the end of the previous financial year) Fair value of outstanding debt securities: (See paragraph 2.8(1)(b), and if applicable, paragraph 2.8(1)(c) ofOSC Rule 13-502 Fees) $_N_/A (2) (Provide details of how value was determined) (1) + (2) $574,741,959.81 Capitalization for the previous fmancial year $40,950 Participation Fee (For Class 1 reporting issuers, from Appendix A of OSC Rule 13-502 Fees, select the participation fee) (For Class 3B reporting issuers, from Appendix A.1 of OSC Rule13-502 Fees, select the participation fee) Late Fee, if applicable (As determined under section 2.7 ofOSC Rule 13-502Fees) $N/A Total Fee Payable (Participation Fee plus Late Fee) $40,950

GRAPHIC

 

Exhibit 99.71

 

FORM 13-501Fl CLASS 1 REPORTING ISSUERS AND CLASS 3B REPORTING ISSUERS­ PARTICIPATION FEE MANAGEMENT CERTIFICATION I, , an officer of the reporting issuer noted below have examined this Largo Resources Ltd. Reporting Issuer Name: December 31,2020 End date of previous financial year: [ x ] Class 1 reporting issuer Type of Reporting Issuer: [] Class 3B reporting issuer TSX Highest Trading Marketplace: Market value of listed or quoted equity securities: LGO Equity Symbol 01/01/20 31/03/20 to 1st Specified Trading Period (dd/nun/yy) Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace 0.7 $ (i-----------------) Ernest Cleave Form 13-501Fl (the Form) being submitted hereunder to the Alberta Securities Commission and certify that to my knowledge, having exercised reasonable diligence, the information provided in the Form is complete and accurate. "Ernest Cleave March 11, 2021 Name: Ernest CleaveDate: Title: Chief Financial Officer

GRAPHIC

 

Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period 562,975,760 (ii) 394,083,032 $ (i) X (ii) Market value of class or series (A) 01/04/20 30/06/20 2nd Specified Trading Period (dd/nun/yy) to Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace 0.84 $ (iii) Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period 563,781,160 (iv) 473,576,174.40 (iii) x (iv) $ Market value of class or series (B) 01/07/20 30/09/20 3rd Specified Trading Period (dd/mm/yy) to Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace 1.1 $ -------------­ (v) Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period 563,781,160 (vi) 620,159,276 (v) x (vi) $ Market value of class or series (C)

GRAPHIC

 

01/10/20 31/12/20 4th Specified Trading Period (ddlmm/yy) -------------to ------------Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace 1.38 $ (vii) Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period 587,789,389 (viii) 811,149,356.82 $ --,--------­ (D) (vii) X (viii) Market value of class or series 5th Specified Trading Period (ddlmm/yy) -------------to ------------Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace $ (ix) Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period (x) (ix) x (x) $ (E-:-)------Market value of class or series Average Market Value of Class or Series (Calculate the simple average of the market value of the class or series of security for each applicable specified trading period (i.e. A through E above)) 574,741,959.81 $ _ (1) (Repeat the above calculation for each other class or series of equity securities of the reporting issuer (and a subsidiary, if applicable) that was listed or quoted on a marketplace at the end of the previous fmancial year)

GRAPHIC

 

Fair value of outstanding debt securities: N/A $ _ (Provide details of how value was determined) (2) 574,741,959.81 $ _ (1)+(2) Capitalization for the previous financial year 19,000 $ Participation Fee N/A $ Late Fee, if applicable 19,000 $ Total Fee Payable (Participation Fee plus Late Fee)

GRAPHIC

 

Exhibit 99.72

 

FORM 52-109F1

 

CERTIFICATION OF ANNUAL FILINGS
FULL CERTIFICATE

 

I, Paulo Misk, Chief Executive Officer of LARGO RESOURCES LTD., certify the following:

 

1.                                      Review: I have reviewed the AIF, if any, annual financial statements and annual MD&A, including, for greater certainty, all documents and information that are incorporated by reference in the AIF (together, the “annual filings”) of LARGO RESOURCES LTD. (the “issuer”) for the financial year ended December 31, 2020.

 

2.                                      No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the annual filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, for the period covered by the annual filings.

 

3.                                      Fair presentation: Based on my knowledge, having exercised reasonable diligence, the annual financial statements together with the other financial information included in the annual filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the annual filings.

 

4.                                      Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

 

5.                                      Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.2, the issuer’s other certifying officer(s) and I have, as at the financial year end

 

(a)                                 designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

 

(i)                                     material information relating to the issuer is made known to us by others, particularly during the period in which the annual filings are being prepared; and

 

(ii)                                  information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

 

(b)                                 designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

 

5.1                               Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Internal Control — Integrated Framework (2013 COSO Framework) published by The Committee of Sponsoring Organizations of the Treadway Commission.

 

5.2                               N/A

 

 

5.3                               N/A

 

6.                                      Evaluation: The issuer’s other certifying officer(s) and I have

 

(a)                                 evaluated, or caused to be evaluated under our supervision, the effectiveness of the issuer’s DC&P at the financial year end and the issuer has disclosed in its annual MD&A our conclusions about the effectiveness of DC&P at the financial year end based on that evaluation; and

 

(b)                                 evaluated, or caused to be evaluated under our supervision, the effectiveness of the issuer’s ICFR at the financial year end and the issuer has disclosed in its annual MD&A

 

(i)                                     our conclusions about the effectiveness of ICFR at the financial year end based on that evaluation; and

 

(ii)                                  N/A

 

7.                                      Reporting changes in ICFR: The issuer has disclosed in its annual MD&A any change in the issuer’s ICFR that occurred during the period beginning on January 1, 2020 and ended on December 31, 2020 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

 

8.                                      Reporting to the issuer’s auditors and board of directors or audit committee: The issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of ICFR, to the issuer’s auditors, and the board of directors or the audit committee of the board of directors any fraud that involves management or other employees who have a significant role in the issuer’s ICFR.

 

 

Date: March 17, 2021

 

 

 

 

 

/s/ “Paulo Misk”

 

Paulo Misk

 

Chief Executive Officer

 

 

2

Exhibit 99.73

 

FORM 52-109F1

 

CERTIFICATION OF ANNUAL FILINGS
FULL CERTIFICATE

 

I, Ernest Cleave, Chief Financial Officer of LARGO RESOURCES LTD., certify the following:

 

1.                                      Review: I have reviewed the AIF, if any, annual financial statements and annual MD&A, including, for greater certainty, all documents and information that are incorporated by reference in the AIF (together, the “annual filings”) of LARGO RESOURCES LTD. (the “issuer”) for the financial year ended December 31, 2020.

 

2.                                      No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the annual filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, for the period covered by the annual filings.

 

3.                                      Fair presentation: Based on my knowledge, having exercised reasonable diligence, the annual financial statements together with the other financial information included in the annual filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the annual filings.

 

4.                                      Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

 

5.                                      Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the financial year end

 

(a)                                 designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

 

(i)                                     material information relating to the issuer is made known to us by others, particularly during the period in which the annual filings are being prepared; and

 

(ii)                                  information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

 

(b)                                 designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

 

5.1                               Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Internal Control — Integrated Framework (2013 COSO Framework) published by The Committee of Sponsoring Organizations of the Treadway Commission.

 

5.2                               N/A

 

 

5.3                               N/A

 

6.                                      Evaluation: The issuer’s other certifying officer(s) and I have

 

(a)                                 evaluated, or caused to be evaluated under our supervision, the effectiveness of the issuer’s DC&P at the financial year end and the issuer has disclosed in its annual MD&A our conclusions about the effectiveness of DC&P at the financial year end based on that evaluation; and

 

(b)                                 evaluated, or caused to be evaluated under our supervision, the effectiveness of the issuer’s ICFR at the financial year end and the issuer has disclosed in its annual MD&A

 

(i)                                     our conclusions about the effectiveness of ICFR at the financial year end based on that evaluation; and

 

(ii)                                  N/A

 

7.                                      Reporting changes in ICFR: The issuer has disclosed in its annual MD&A any change in the issuer’s ICFR that occurred during the period beginning on January 1, 2020 and ended on December 31, 2020 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

 

8.                                      Reporting to the issuer’s auditors and board of directors or audit committee: The issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of ICFR, to the issuer’s auditors, and the board of directors or the audit committee of the board of directors any fraud that involves management or other employees who have a significant role in the issuer’s ICFR.

 

 

Date: March 17, 2021

 

 

 

 

 

/s/ “Ernest Cleave”

 

Ernest Cleave

 

Chief Financial Officer

 

 

2

Exhibit 99.74

 

 

PRESS RELEASE

 

March 17, 2021

 

Largo Resources Announces Strong 2020 Financial Results Following Transformative Year; Focused on Continued Growth in 2021 with Robust Vanadium Market and New Largo Clean Energy Division

 

All amounts expressed are in U.S. dollars, denominated by “$”.

 

Q4 2020 Highlights

 

·                  Cash operating costs excluding royalties(2) of $2.56 per lb V2O5, a 2% improvement over Q4 2019

·                  Revenues of $42.3 million, an increase of 64% over Q4 2019; Revenues per lb sold(2) of $5.12, a 25% increase over Q4 2019

·                  Net income of $6.9 million vs. a net loss of $4.3 million in Q4 2019

·                  Record quarterly V2O5 production of 3,340 tonnes (7.4 million lbs(1)), an 11% increase over Q4 2019

·                  Record quarterly sales of 3,746 tonnes of V2O5 equivalent, a 31% increase over Q4 2019

 

Full Year 2020 Highlights

 

·                   Continued low-cost operations: Annual cash operating costs excluding royalties(2) of $2.56 per lb V2O5, 5% lower than 2020 cost guidance; 16% lower than 2019

·                  Revenues of $120.0 million, a 14% increase over 2019; Revenues per lb sold(2) of $5.31, a 13% increase over 2019; This performance is to be recognized in the context of an average European Fastmarkets Metal Bulletin (“FMB”) V2O5 price of $5.71 per lb in 2020, compared to $9.34 per lb 2019

·                  Net income of $6.8 million and basic earnings per share(9) of $0.12

·                  Strong liquidity position maintained: Cash balance of $79.1 million exiting 2020 and a net working capital surplus of $93.0 million, despite significantly reducing trade payables in May 2020 through the cash settlement of trade payables relating to price adjustments under the Company’s former off-take agreement

·                   Record operational performance: Annual V2O5 production 11,825 tonnes (26.1 million lbs(1)) in 2020, a 12% increase over 2019; Within 2020 V2O5 production guidance of 11,750 – 12,250 tonnes

·                   2020 sales guidance exceeded: Total V2O5 equivalent sales of 10,254 tonnes in 2020, exceeding high-end V2O5 sales guidance by 254 tonnes

·                  Launch of Largo Clean Energy: The Company will focus on the deployment of its VCHARGE± batteries for the fast-growing renewable energy sector

·                  Strong focus on safe business continuity: Largo continues to prioritize the health and safety of its workforce and extend support to local communities during the global COVID-19 pandemic

·                  Environmental, Social, and Governance (“ESG”) improvement program initiated: Largo conducted an ESG gap analysis in 2020 which has led to several recommendations. The Company is now working on improvement opportunities to its overall ESG performance and disclosure

 

Other Significant Highlights

 

·                  Debt-free: The Company completed the prepayment of its outstanding credit facilities in February 2021

 

 

·                  Share consolidation complete: The Company completed a consolidation of its issued and outstanding common shares (“Common Shares”) at a ratio of one (1) post-consolidation share for every ten (10) pre-consolidation shares on March 4, 2021 and began trading on a post-consolidated basis on March 8, 2021

·                  Nasdaq Stock Market (“Nasdaq”) application: The Company has submitted an initial application to list its Common Shares on Nasdaq with the view of increasing access to U.S. capital markets and enhancing overall shareholder value

 

Robust Vanadium Market

 

·                  European FMB FeV prices are up by more than 34% since the beginning of 2021

·                  European FMB V2O5 prices are up by more than 54% since the beginning of 2021

·                  U.S. CRU FeV prices are up by more than 44% since the beginning of 2021

 

TORONTO - Largo Resources Ltd. (“Largo” or the “Company”) (TSX: LGO) (OTCQX: LGORD) is pleased to announce its 2020 financial results highlighted by revenues of $120.0 million on sales of 10,254 tonnes of vanadium pentoxide (“V2O5”) equivalent. For 2020, the Company achieved a new annual V2O5 production record of 11,825 tonnes and the lowest annual cash operating costs excluding royalties(2) to date of $2.56 per pound sold of V2O5.

 

2020 marked a transformative year for the Company as it successfully established and implemented its internal sales division while navigating challenges presented by the global COVID-19 pandemic. In 2020, the Company surpassed its annual V2O5 sales guidance by 254 tonnes and outperformed its annual cash cost guidance by 5%. These results continue to highlight the Company’s strong focus on operational excellence and stringent cost management.

 

Paulo Misk, President and Chief Executive Officer for Largo, stated: “The Company exited 2020 with strong operational and financial momentum following new quarterly and annual production records and a new quarterly sales record. I am pleased to report that we achieved the lowest annual cash operating costs excluding royalties(2) to date of $2.56 per lb V2O5 in 2020, outperforming the Company’s annual cash cost guidance by 5%. The Company ended 2020 with a cash balance of $79.1 million and following the full repayment of the Company’s outstanding credit facilities in February 2021, is now debt-free. Our financial position remains strong and the entire Largo team is focused on the execution and delivery of the Company’s strategic growth projects with the goal of significantly increasing shareholder value. In Q2 2021, we expect to release an updated technical report which will be aimed at upgrading mineral resources to mineral reserves, expanding our minerals resources and will incorporating the vanadium trioxide (“V2O3”) plant and titanium dioxide (“TiO2”) pigment projects.” He continued: “Largo Clean Energy remains a particular focus as we work to commercialize our superior VCHARGE± battery technology to capitalize on long-duration, clean energy storage opportunities around the world. Additionally, robust vanadium demand and low inventories continue to support price increases across all our main markets as evidenced by recent FMB spot market trades recorded as high as $8.65 per lb V2O5.”  He concluded: “We remain very excited about the prospect of a Nasdaq listing as it is a major step forward in expanding our shareholder base and access to capital markets in the United States.”

 

2

 

A summary of the operational and financial performance for the fourth quarter and full year 2020 is provided below:

 

Financial

 

 

 

Three months ended

 

Year ended

 

 

 

December 31,
2020

 

December 31,
2019

 

December 31,
2020

 

December 31,
2019

 

Revenues

 

$

42,254

 

$

25,808

 

$

119,987

 

$

105,107

 

Operating costs

 

(31,604

)

(22,679

)

(88,390

)

(92,950

)

Direct mine and production costs

 

(18,547

)

(15,098

)

(48,929

)

(63,156

)

Net income (loss) before tax

 

6,023

 

(2,526

)

7,723

 

(23,494

)

Income tax (expense) recovery

 

282

 

(856

)

(139

)

(864

)

Deferred income expense

 

576

 

(922

)

(823

)

(2,612

)

Net income (loss)

 

6,881

 

(4,304

)

6,761

 

(26,970

)

Basic earnings (loss) per share

 

0.12

 

(0.08

)

0.12

 

(0.50

)

Diluted earnings (loss) per share

 

0.11

 

(0.08

)

0.11

 

(0.50

)

 

 

 

 

 

 

 

 

 

 

Cash provided (used) before non-cash working capital items

 

$

7,539

 

$

13,739

 

$

12,065

 

$

21,627

 

Net cash (used in) provided by operating activities

 

4,741

 

9,350

 

(59,508

)

104,597

 

Net cash provided by (used in) financing activities

 

2,589

 

9,250

 

30,232

 

(85,310

)

Net cash (used in) investing activities

 

(5,070

)

(5,697

)

(18,106

)

(37,948

)

Net change in cash

 

4,250

 

10,725

 

(48,354

)

(23,889

)

 

 

 

 

 

As at

 

 

 

December 31,
2020

 

December 31,
2019

 

Cash

 

$

79,145

 

127,499

 

Working capital(3)

 

92,950

 

78,380

 

 

Operational

 

 

 

2020

 

2019

 

 

 

Q1

 

Q2

 

Q3

 

Q4

 

Full Year

 

Q4

 

Full Year

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Ore Mined (tonnes)

 

203,966

 

257,357

 

287,969

 

338,226

 

1,087,518

 

329,792

 

1,156,016

 

Ore Grade Mined - Effective Grade (%)(5)

 

1.61

 

1.20

 

1.28

 

1.18

 

1.29

 

1.36

 

1.34

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective Grade of Ore Milled (%)(5)

 

1.59

 

1.29

 

1.26

 

1.28

 

1.34

 

1.57

 

1.50

 

Concentrate Produced (tonnes)

 

100,072

 

99,059

 

104,921

 

108,609

 

412,661

 

100,879

 

382,501

 

Grade of Concentrate (%)

 

3.36

 

3.20

 

3.32

 

3.24

 

3.28

 

3.28

 

3.29

 

Contained V2O5 (tonnes)

 

3,365

 

3,174

 

3,487

 

3,515

 

13,540

 

3,310

 

12,580

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crushing Recovery (%)

 

98.3

 

97.7

 

98.1

 

98.1

 

98.1

 

96.6

 

97.0

 

Milling Recovery (%)

 

98.4

 

94.7

 

96.5

 

95.4

 

96.2

 

96.0

 

96.9

 

Kiln Recovery (%)

 

88.3

 

91.7

 

92.5

 

91.2

 

91.0

 

89.7

 

89.1

 

Leaching Recovery (%)

 

96.6

 

99.1

 

99.7

 

98.5

 

98.6

 

96.7

 

96.8

 

Chemical Plant Recovery (%)

 

96.8

 

96.1

 

96.4

 

95.8

 

96.3

 

96.1

 

96.8

 

Global Recovery (%)(4)

 

79.9

 

80.8

 

84.2

 

80.6

 

81.5

 

77.3

 

78.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

V2O5 produced (tonnes)

 

2,831

 

2,562

 

3,092

 

3,340

 

11,825

 

3,011

 

10,577

 

V2O5 produced (equivalent pounds(1))

 

6,241,279

 

5,648,236

 

6,816,685

 

7,363,431

 

26,069,631

 

6,638,111

 

23,318,266

 

 

3

 

2020 Financial Results

 

The Company recorded net income of $6.8 million in 2020 compared to a net loss of $27.0 million in 2019. This movement was primarily due to an increase in revenues and a decrease in operating costs, professional, consulting and management fees, share-based payments, and finance costs.

 

During 2020, the Company recognized revenues of $120.0 million from sales of 10,254 tonnes of V2O5 equivalent. This represents an increase of 14% from revenues of $105.1 million in 2019. Revenues per pound sold(2) were $5.31 in 2020 compared to $4.69 per pound sold in 2019, representing an increase of 13%.

 

Operating costs of $88.4 million decreased by 5% in 2020 from $93.0 million in 2019. Operating costs in 2020 include direct mine and production costs of $48.9 million (2019 – $63.2 million), conversion costs of $2.0 million (2019 – $nil), product acquisition costs of $10.5 million (2019 – $nil), royalties of $7.1 million (2019 – $5.9 million), distribution costs of $2.3 million (2019 – $nil), inventory write-down of $0.2 million (2019 – $nil) and depreciation and amortization of $17.5 million (2019 – $23.8 million).

 

Cash operating costs excluding royalties(2) were $2.56 per lb in 2020, compared with $3.06 for 2019. The decrease seen in 2020 compared with 2019 is largely due to a decrease in direct mine and production costs, which is primarily attributable to the lower costs recognized in Q2 2020 when the Company was ramping up its sales activities and cost reductions realized as a result of the expansion completed in 2019. For 2020, total cash costs(2) were $3.34 per pound sold.

 

For 2020, cash used in operating activities was $59.5 million, compared with cash provided by operating activities of $104.6 million in 2019. This movement is primarily attributable to a decreased in cash provided before working capital items of $9.6 million and a net decrease in working capital items of $154.5 million, which is largely driven by movements in amounts receivable and accounts payable and accrued liabilities. The change in amounts receivable is primarily due to the increased payment terms with the Company’s customers in 2020 as compared with 2019.

 

The Company’s cash position as of December 31, 2020 was $79.1 million. Subsequent to this date, the Company prepaid in full all of its outstanding credit facilities in Brazil that were scheduled to mature on March 12 and March 18, 2021, respectively. The Company completed the prepayment of $24.8 million in aggregate principal amount between the dates of January 29 and February 3, 2021, plus accrued and unpaid interest and all exit fees which were paid at a lower rate than the scheduled interest payable to the end of the maturity dates.

 

2020 Operational Results

 

2020 production of 11,825 tonnes of V2O5 marked a new annual record for the Company and was within the 2020 guidance of 11,750 to 12,250 tonnes of V2O5. This represents an increase of 12% in annual production over 2019. Q4 2020 production of 3,340 tonnes of V2O5 also set a new quarterly production record, being 11% higher than Q4 2019 and 8% higher than the previous record of 3,092 tonnes in Q3 2020.

 

The Company achieved a new annual average global V2O5 recovery(4) record of 81.5% in 2020 which represents a 4% increase over the 78.5% averaged in 2019. In Q4 2020, global recoveries(4) averaged 80.6% which compares favourably to 77.3% averaged in Q4 2019. The increase in global recoveries(4) over 2020 is primarily due to the completion of continuous improvement projects in the plant focused on improving recoveries.

 

4

 

In Q4 2020, 338,226 tonnes of ore were mined with an effective grade(5) of 1.18% of V2O5. The ore mined in Q4 2020 was 3% higher than in Q4 2019 and 17% higher than in Q3 2020. The Company produced 108,609 tonnes of concentrate with an effective grade(5) of 3.24%. The contained V2O5 in the concentrate produced was 8% higher in 2020 than in 2019. The operational performance in Q4 2020 remained in-line with the Company’s plans despite the COVID-19 restrictions put in place.

 

Subsequent to 2020, production in January 2021 was 382 tonnes of V2O5, and production in February 2021 was 769 tonnes of V2O5. The decrease in production levels seen is due to the planned shutdown to implement upgrades to the kiln and improvements in the cooler. It is anticipated that these upgrades and improvements will increase the nameplate production capacity to 1,100 tonnes of V2O5 per month by the end of Q2 2021.

 

2020 Sales Guidance Exceeded – Successful Completion of 2021 Sales Contract Campaign

 

For 2020, the Company exceeded its annual sales guidance of 9,500 to 10,000 tonnes of V2O5 equivalent with total sales of 10,254 tonnes of V2O5 equivalent. In Q4 2020, the Company achieved a record quarterly sales level of 3,746 tonnes of V2O5 equivalent sold. The Company delivered both standard grade and high purity V2O5 as well as ferrovanadium (“FeV”) to customers globally. Following the logistics constraints experienced in Q3 2020, delays in deliveries to customers in Asia eased during Q4 2020. The Company continues to actively manage any logistics challenges it faces to provide premium products and service to its customers.

 

The Company successfully completed its sales contract campaign and has allocated a significant proportion of its estimated monthly production in 2021 to these contracts. Geographically, these contracts are well diversified with a well-balanced global footprint. The Company maintains a strong focus on developing new markets for its high purity products, including chemical applications and an expected gradual recovery of the aerospace industry beginning in Q2 2021. With the launch of Largo Clean Energy, the Company also aims to grow its sales into the fast-growing vanadium redox flow battery (“VRFB”) market.

 

Contributing to a Lower Carbon Future with Largo Clean Energy and its VCHARGE± Battery Technology

 

In December 2020, the Company launched Largo Clean Energy to provide safe, long-duration VRFBs to the fast-growing global renewable energy storage market. Largo remains focused on commercializing, producing, and deploying its superior VCHARGE± battery technology to capitalize on opportunities around the world. The Company is already in active discussions with end-users to sell and deploy its first VCHARGE± battery and will keep the market updated on its progress.

 

The VRFB’s technical and economic advantages are well-known and Largo plans to unlock the technology’s potential by providing a secure and reliable supply of high purity vanadium from its world-class Maracás Menchen Mine. Largo’s high purity VPURE+™ products have been previously tested in the manufacturing of electrolyte for VCHARGE± technology, demonstrating outstanding results.

 

5

 

ESG Improvement Program

 

The Company prides itself on a proven history of community relations, stakeholder engagement and excellent social and environmental stewardship. On July 20, 2020, the Company announced the release of its 2019 sustainability report highlighted by improved performance metrics and new reporting standards. Largo’s sustainability reporting is now guided in part by the Sustainability Accounting Standards Board (SASB) and closely follows Global Reporting Initiative (GRI) benchmarks.

 

During 2020, Largo conducted an initial assessment of climate-related risks and opportunities. The assessment took into consideration the potential impacts on all of the Company’s stakeholders. By better understanding these issues, the Company can explore the implementation of necessary mitigations and at the right time, explore new opportunities related to the enhancement of its overall ESG performance and disclosures. In addition to the climate change assessment, the Company conducted an ESG gap analysis in November 2020. This has led to several recommendations and the Company is now working on improvements to its overall ESG performance and disclosure. The Company expects to release its 2020 ESG report in late Q2 2021.

 

Vanadium Markets Outlook

 

In the first weeks of 2021, vanadium prices have increased in all main markets on the back of solid demand, low inventories, and renewed optimism.

 

·                  European FMB FeV prices are up by more than 34% since the beginning of 2021

·                  European FMB V2O5 prices are up more than 54% since the beginning of 2021

·                  U.S. CRU FeV prices are up by more than 44% since the beginning of 2021

 

The Company also expects that growing interest from the long-duration battery sector will continue to drive future vanadium demand growth in 2021 and beyond. Global energy storage deployment is expected to reach 1,095 GW/2,850 Gigawatt hours (“GWh”)(6) in 2040 and Largo believes that long-duration VRFBs will play a critical role in addressing this significant demand. It is estimated that long-duration energy storage (4 to 12+ hours) market growth will reach $16 billion worldwide(7) by 2025.

 

Share Consolidation and Nasdaq Application

 

On March 1, 2021, the Company announced that the consolidation of its Common Shares on the basis of up to one (1) post-consolidation Common Share for every ten (10) pre-consolidation Common Shares (the “Consolidation”) was approved at the Special Meeting of Shareholders (the “Meeting”) held on the same date. Subsequently, the Company’s Board of Directors determined to proceed with a consolidation ratio of one (1) post-consolidation share for every ten (10) pre-consolidation shares in accordance with the parameters authorized by the Company’s shareholders at the Meeting. The Common Shares were consolidated effective on March 4, 2021 and commenced trading on the Toronto Stock Exchange (the “TSX”) on a post-consolidation basis at the open of trading on March 8, 2021.

 

The Company also announced that it has submitted an initial application to list its Common Shares on the Nasdaq with the view of increasing access to U.S. capital markets and enhancing overall shareholder value. The listing of the Company’s Common Shares on Nasdaq remains subject to the review and approval of the listing application

 

6

 

and the satisfaction of all applicable listing and regulatory requirements, including the filing of a registration statement with and declaration of effectiveness by the United States Securities and Exchange Commission.

 

Conference Call

 

Largo Resources management will host a conference call on Thursday, March 18, at 3:00 p.m. ET, to discuss the Company’s annual operational and financial results for 2020.

 

Conference Call Details:

 

Date:

 

Thursday, March 18, 2021

 

 

 

Time:

 

3:00 p.m. ET

 

 

 

Dial-in Number:

 

Local / International: +1 (416) 764-8688

 

 

North American Toll Free: (888) 390-0546

 

 

Brazil Toll Free:  08007621359

 

 

 

Audio Only Conference Line / Q&A Portal:

 

https://produceredition.webcasts.com/starthere.jsp?ei=1438431&tp_key=39b19e657c

 

 

 

Q&A Details:

 

The Company requests that all questions be submitted through the online portal link provided above. The ability to submit questions over the phone is not available during this call. 

 

 

 

Conference ID:

 

00739969

 

 

 

Replay Number:

 

Local / International: + 1 (416) 764-8677

 

 

North American Toll Free: (888) 390-0541

 

 

Replay Passcode: 739969 #

 

 

 

Website:

 

To view press releases or any additional financial information, please visit the Investor Relations section of the Largo Resources website at:  www.largoresources.com/investors

 

A playback recording will be available on the Company’s website for a period of 60-days following the conference call.

 

The information provided within this release should be read in conjunction with Largo’s annual consolidated financial statements for the years ended December 31, 2020 and 2019 and its management’s discussion and analysis for the year ended December 31, 2020 which are available on our website at www.largoresources.com and on SEDAR.

 

About Largo Resources

 

Largo Resources is an industry preferred producer and supplier of high-quality vanadium. Largo can service multiple vanadium market applications through the supply of its unrivaled VPURE™ and VPURE+™ products, which are sourced from one of the world’s highest-grade vanadium deposits at the Company’s Maracás Menchen Mine located in Brazil. Largo is also focused on the advancement of renewable energy storage solutions through Largo Clean Energy and its world-class VCHARGE± vanadium redox flow battery technology. The Company’s common shares are listed on the Toronto Stock Exchange under the symbol “LGO”.

 

For more information on Largo and VPURE™, please visit www.largoresources.com and www.largoVPURE.com.

 

7

 

For additional information on Largo Clean Energy, please visit www.largocleanenergy.com.

 

Neither the Toronto Stock Exchange (nor its regulatory service provider) accepts responsibility for the adequacy or accuracy of this release.

 

CONTACT INFORMATION:

 

For further information, please contact:

 

Investor Relations:

Alex Guthrie
Senior Manager, External Relations
aguthrie@largoresources.com
Tel: +1 416-861-9797

 

Media Enquiries:

Crystal Quast

Bullseye Corporate

Quast@bullseyecorporate.com

Tel: +1 647-529-6364

 

Neither the Toronto Stock Exchange (nor its regulatory service provider) accepts responsibility for the adequacy or accuracy of this press release.

 

Forward-looking Information:

 

This press release contains forward-looking information under Canadian securities legislation, some of which may be considered “financial outlook” for the purposes of application Canadian securities legislation (“forward-looking statements”). Forward-looking information in this press release includes, but is not limited to, statements with respect to the timing and amount of estimated future production and sales; costs of future activities and operations; the extent of capital and operating expenditures; and the extent and overall impact of the COVID-19 pandemic in Brazil and globally. Forward-looking information in this press release also includes, but is not limited to, statements with respect to our ability to build, finance and operate a VRFB business, our ability to complete a listing on the Nasdaq, our ability to protect and develop our technology, our ability to maintain  our IP, our ability to market and sell our VCHARGE± battery system on specification and at a competitive price, our ability to secure the required production resources to build our VCHARGE± battery system, and the adoption of VFRB technology generally in the market. Forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. All information contained in this news release, other than statements of current and historical fact, is forward looking information. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity,

 

8

 

performance or achievements of Largo or Largo Clean Energy to be materially different from those expressed or implied by such forward-looking statements, including but not limited to those risks described in the annual information form of Largo and in its public documents filed on SEDAR from time to time. Forward-looking statements are based on the opinions and estimates of management as of the date such statements are made. Although management of Largo has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Largo does not undertake to update any forward-looking statements, except in accordance with applicable securities laws. Readers should also review the risks and uncertainties sections of Largo’s annual and interim MD&As which also apply.

 

Trademarks are owned by Largo Resources Ltd.

 

Non-GAAP(8) Measures

 

The Company uses certain non-GAAP financial performance measures in its press release and MD&A, which are described in the following section.

 

Revenues Per Pound

 

The Company’s press release refers to revenues per pound sold, a non-GAAP performance measure that is used to provide investors with information about a key measure used by management to monitor performance of the Company.

 

This measure, along with cash operating costs and total cash costs, is considered to be one of the key indicators of the Company’s ability to generate operating earnings and cash flow from its Maracás Menchen Mine and sales activities. This revenues per pound measure does not have any standardized meaning prescribed by IFRS and differs from measures determined in accordance with IFRS. This measure is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. This measure is not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.

 

The following table provides a reconciliation of this measure per pound sold to revenues as per the 2020 annual consolidated financial statements.

 

 

 

Three months ended

 

Year ended

 

 

 

December 31,
2020

 

December 31,
2019

 

December 31,
2020

 

December 31,
2019

 

Revenues(i)

 

$

42,254

 

$

25,808

 

$

119,987

 

$

105,107

 

V2O5 equivalent sold (000s lb)

 

8,259

 

6,305

 

22,606

 

22,399

 

Revenues per pound sold ($/lb)

 

$

5.12

 

$

4.09

 

$

5.31

 

$

4.69

 

 

(i)            Year ended as per note 23 of the Company’s 2020 annual consolidated financial statements.

Three months ended calculated as the amount per note 23 less the amount disclosed for the nine-month periods in note 21 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2020 and 2019: $119,987 – $77,733 = $42,254 and $105,107 – $79,299 = $25,808.

 

Cash Operating Costs Per Pound

 

The Company’s press release refers to cash operating costs per pound, a non-GAAP performance measure, in order to provide investors with information about a key measure used by management to monitor performance. This information is used to assess how well the Maracás Menchen Mine is performing compared to plan and prior periods, and also to assess its overall effectiveness and efficiency.

 

9

 

Cash operating costs includes mine site operating costs such as mining costs, plant and maintenance costs, sustainability costs, mine and plant administration costs, royalties and sales, general and administrative costs (all for the Mine properties segment), but excludes depreciation and amortization, share-based payments, foreign exchange gains or losses, commissions, reclamation, capital expenditures and exploration and evaluation costs. Operating costs not attributable to the Mine properties segment are also excluded, including conversion costs, product acquisition costs, distribution costs, and inventory write-downs. These costs are then divided by the pounds of vanadium sold that were produced by the Maracás Menchen Mine to arrive at the cash operating costs per pound. Prior to 2020, these costs were divided by the pounds of production from the Maracás Menchen Mine, rather than pounds sold. These periods have been recalculated using produced pounds sold in the following table. This measure differs to the new total cash costs non-GAAP measure the Company uses to measure its overall performance (see later in this section).

 

These measures, along with revenues, are considered to be one of the key indicators of the Company’s ability to generate operating earnings and cash flow from its Maracás Menchen Mine. These cash operating costs measures do not have any standardized meaning prescribed by IFRS and differ from measures determined in accordance with IFRS. These measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These measures are not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.

 

In addition, the Company’s press release refers to cash operating costs excluding royalties. This is a non-GAAP performance measure and is calculated as cash operating costs less royalties, as disclosed in the following table.

 

The following table provides a reconciliation of cash operating costs per pound for the Maracás Menchen Mine to operating costs as per the 2020 annual consolidated financial statements.

 

 

 

Three months ended

 

Year ended

 

 

 

December 31,
2020

 

December 31,
2019

 

December 31,
2020

 

December 31,
2019

 

Operating costs(i)

 

$

31,604

 

$

22,679

 

$

88,390

 

$

92,950

 

Professional, consulting and management fees(ii)

 

963

 

1,045

 

3,086

 

4,513

 

Other general and administrative expenses(iii)

 

514

 

257

 

1,669

 

859

 

Less: conversion costs(iv)

 

(1,330

)

—

 

(1,976

)

—

 

Less: product acquisition costs(v)

 

(2,965

)

—

 

(10,459

)

—

 

Less: distribution costs(vi)

 

(1,029

)

—

 

(2,269

)

—

 

Less: inventory write-down(vii)

 

—

 

—

 

(3

)

—

 

Less: depreciation and amortization expense(viii)

 

(5,728

)

(6,085

)

(17,473

)

(23,847

)

Cash operating costs

 

22,029

 

17,896

 

60,965

 

74,475

 

Less: royalties(ix)

 

(1,958

)

(1,496

)

(7,107

)

(5,947

)

Cash operating costs excluding royalties

 

20,071

 

16,400

 

53,858

 

68,528

 

Produced V2O5 sold (000s lb)(x)

 

7,831

 

6,305

 

21,027

 

22,399

 

Cash operating costs per pound ($/lb)(x)

 

$

2.81

 

$

2.84

 

$

2.90

 

$

3.32

 

Cash operating costs excluding royalties per pound ($/lb)(x)

 

$

2.56

 

$

2.60

 

$

2.56

 

$

3.06

 

 

(i)

Year ended as per note 24 of the Company’s 2020 annual consolidated financial statements.

 

Three months ended calculated as the amount per note 24 of the Company’s 2020 annual consolidated financial statements less the amount disclosed for the nine-month periods in note 22 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2020 and 2019: $88,390 – $56,786 = $31,604 and $92,950 – $70,271 = $22,679.

(ii)

Year ended as per the Mine properties segment in note 19.

 

Three months ended calculated as the amount for the Company’s Mine properties segment in note 19 of the Company’s 2020 annual consolidated financial statements, less the amount disclosed for the Mine properties segment for the nine-month periods in note 18 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2020 and 2019: $3,086 – $2,123 = $963 and $4,513 – $3,468 = $1,045.

(iii)

Year ended as per the Mine properties segment in note 19.

 

Three months ended calculated as the amount for the Company’s Mine properties segment in note 19 of the Company’s 2020 annual consolidated financial statements, less the amount disclosed for the Mine properties segment for the nine-month periods in note 18 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2020 and 2019: $1,669 – $1,155 = $514 and $859 – $602 = $257.

(iv)

As per note 24 of the Company’s 2020 annual consolidated financial statements.

(v)

Year ended as per note 24 of the Company’s 2020 annual consolidated financial statements.

 

 

10

 

 

Three months ended calculated as the amount per note 24 of the Company’s 2020 annual consolidated financial statements less the amount disclosed for the nine-month period in note 22 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2020 adjusted for inventory write-down now recognized in product acquisition costs: $10,459 – $7,180 – ($317 – $3) = $2,965.

(vi)

Year ended as per note 24 of the Company’s 2020 annual consolidated financial statements.

 

Three months ended calculated as the amount per note 24 less the amount disclosed for the nine-month period in note 22 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2020: $2,269 – $1,240 = $1,029.

(vii)

As per note 6 of the Company’s 2020 annual consolidated financial statements.

(viii)

Year ended as per note 24 of the Company’s 2020 annual consolidated financial statements.

 

Three months ended calculated as the amount per note 24 of the Company’s 2020 annual consolidated financial statements less the amount disclosed for the nine-month periods in note 22 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2020 and 2019: $17,473 – $11,745 = $5,728 and $23,847 – $17,762 = $6,085.

(ix)

Year ended as per note 24 of the Company’s 2020 annual consolidated financial statements.

 

Three months ended calculated as the amount per note 24 of the Company’s 2020 annual consolidated financial statements less the amount disclosed for the nine-month periods in note 22 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2020 and 2019: $7,107 – $5,149 = $1,958 and $5,947 – $4,451 = $1,496.

(x)

Cash operating costs per pound and cash operating costs excluding royalties per pound for Q4 2019 and 2019 were previously calculated and presented on a pounds produced basis (V2O5 produced (000s lb) = 6,638 and 23,318, respectively; V2O5 sold (000s lb) = 6,305 and 22,399, respectively). These measures have been calculated and presented on a pounds sold basis in this press release.

 

Total Cash Costs

 

The Company’s press release refers to total cash costs, a non-GAAP performance measure, in order to provide investors with information about a key measure used by management to monitor performance. This information is used to assess how well the Company is performing at producing and selling vanadium products compared to plan and prior periods, and also to assess its overall effectiveness and efficiency.

 

Total cash costs are a non-GAAP performance measure that includes all operating costs, sales and distribution costs and the Company’s total professional, consulting and management fees and other general and administrative expenses. Total cash costs exclude royalties, depreciation and amortization, share-based payments, foreign exchange gains or losses, commissions, reclamation costs, exploration and evaluation costs and capital expenditures. These costs are then divided by the total pounds of vanadium sold by the Company to arrive at total cash costs.

 

This measure differs from cash operating costs per pound in that it includes all operating costs, sales and distribution costs, professional, consulting and management fees and other general and administrative expenses, rather than just those costs from the Mine properties segment, and is calculated on total V2O5 equivalent pounds sold rather than pounds sold that were produced by the Maracás Menchen Mine. The Company believes this will be a more accurate reflection of its all-in unit costs.

 

This total cash costs measure does not have any standardized meaning prescribed by IFRS and differs from measures determined in accordance with IFRS. This measure is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. This measure is not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.

 

The following table provides a reconciliation of total cash costs to operating costs as per the 2020 annual consolidated financial statements.

 

 

 

Three months ended

 

Year ended

 

 

 

December 31,
2020

 

December 31,
2020

 

Operating costs(i)

 

$

31,604

 

$

88,390

 

Professional, consulting and management fees(ii)

 

3,229

 

8,255

 

Other general and administrative expenses(ii)

 

1,027

 

3,329

 

Less: depreciation and amortization expense(iii)

 

(5,728

)

(17,473

)

Less: royalties(iv)

 

(1,958

)

(7,107

)

 

 

$

28,174

 

$

75,394

 

V2O5 equivalent sold (000s lb)

 

8,259

 

22,606

 

Total cash costs ($/lb)

 

$

3.41

 

$

3.34

 

 

(i)

Year ended as per note 24 of the Company’s 2020 annual consolidated financial statements.

 

Three months ended calculated as the amount per note 24 less the amount disclosed for the nine-month period in note 22 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2020: $88,390 – $56,786 = $31,604.

(ii)

As per the consolidated statements of income (loss) and comprehensive income (loss).

(iii)

Year ended as per note 24 of the Company’s 2020 annual consolidated financial statements.

 

11

 

 

Three months ended calculated as the amount per note 24 of the Company’s 2020 annual consolidated financial statements less the amount disclosed for the nine-month period in note 22 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2020: $17,473 – $11,745 = $5,728.

(iv)

Year ended as per note 24 of the Company’s 2020 annual consolidated financial statements.

 

Three months ended calculated as the amount per note 24 of the Company’s 2020 annual consolidated financial statements less the amount disclosed for the nine-month period in note 22 of the Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2020: $7,107 – $5,149 = $1,958.

 

(1)

Conversion of tonnes to pounds, 1 tonne = 2,204.62 pounds or lbs.

(2)

The cash operating costs excluding royalties per pound sold and revenues per pound are reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this press release.

(3)

Defined as current assets less current liabilities per the consolidated statements of financial position.

(4)

Global recovery is the product of crushing recovery, milling recovery, kiln recovery, leaching recovery and chemical plant recovery.

(5)

Effective grade represents the percentage of magnetic material mined multiplied by the percentage of V2O5 in the magnetic concentrate.

(6)

BloombergNEF

(7)

Navigant Research

(8)

GAAP – Generally Accepted Accounting Principles.

(9)

GAAP – Concurrent with the Consolidation, the Company’s basic and diluted earnings (loss) per share for the periods presented above have been retrospectively adjusted. The effect of the share consolidation on the issued and outstanding number of Common Shares at December 31, 2020 is shown in note 25 of the Company’s 2020 annual consolidated financial statements.

 

12

Exhibit 99.75

 

 

PRESS RELEASE

 

March 18, 2021

 

Largo Resources Approves the Construction of a New Ilmenite Concentration Plant

 

TORONTO — Largo Resources Ltd. (“Largo” or the “Company”) (TSX: LGO) (OTCQX: LGORD) is pleased to announce that the Company’s Board of Directors (the “Board”) has approved the construction of a new ilmenite concentration plant.

 

Commercial production from the new plant is expected early in 2023 and the plant’s capacity will be approximately 150,000 tonnes of ilmenite concentrate per annum. The Company started an ilmenite pilot plant in October 2019. Based on the promising results, the Board approved construction of a full-scale plant. The advanced engineering and construction of the ilmenite concentration plant is expected to cost approximately US$25.2 million with the majority of these costs being incurred in 2022. The Company is also further evaluating the potential to produce titanium dioxide pigment as a possible follow-on product.

 

Paulo Misk, President and Chief Executive Officer of Largo, stated: “The approval of our new ilmenite concentration plant is another step to increase and diversify our revenues. As we work to complete this project, we will also continue to explore the feasibility of extracting additional value from the Company’s mineral resource.”

 

About Largo Resources

 

Largo Resources is an industry preferred, vertically integrated vanadium company. It services multiple vanadium market applications through the supply of its unrivaled VPURE™ and VPURE+™ products, from one of the world’s highest-grade vanadium deposits at the Company’s Maracás Menchen Mine located in Brazil. Largo is also focused on the advancement of renewable energy storage solutions through its world-class VCHARGE± vanadium redox flow battery technology. The Company’s common shares are listed on the Toronto Stock Exchange under the symbol “LGO”.

 

For more information on Largo and VPURE™, please visit www.largoresources.com and www.largoVPURE.com.

 

For additional information on Largo Clean Energy, please visit www.largocleanenergy.com.

 

###

 

For further information, please contact:

 

Investor Relations:

Alex Guthrie
Senior Manager, External Relations
aguthrie@largoresources.com
Tel: +1 416-861-9797

 

 

Media Enquiries:

Crystal Quast

Bullseye Corporate

Quast@bullseyecorporate.com

Tel: +1 647-529-6364

 

Forward-looking Information:

 

This press release contains forward-looking information under Canadian securities legislation, some of which may be considered “financial outlook” for the purposes of application Canadian securities legislation (“forward-looking statements”). Forward-looking information in this press release includes, but is not limited to, statements with respect to the timing and amount of estimated future production and sales; costs of future activities and operations; the extent of capital and operating expenditures; the iron ore price environment, the timing and cost related to the build out of the ilmenite plan, eventual production from the ilmenite plant, the ability to sell ilmenite on a profitable basis and the extent and overall impact of the COVID-19 pandemic in Brazil and globally. Forward-looking information in this press release also includes, but is not limited to, statements with respect to our ability to build, finance and operate a VRFB business, our ability to complete a listing on the Nasdaq, our ability to protect and develop our technology, our ability to maintain our IP, our ability to market and sell our VCHARGE± battery system on specification and at a competitive price, our ability to secure the required production resources to build our VCHARGE± battery system, our ability to produce iron ore and the adoption of VFRB technology generally in the market. Forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. All information contained in this news release, other than statements of current and historical fact, is forward looking information. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of Largo or Largo Clean Energy to be materially different from those expressed or implied by such forward-looking statements, including but not limited to those risks described in the annual information form of Largo and in its public documents filed on SEDAR from time to time. Forward-looking statements are based on the opinions and estimates of management as of the date such statements are made. Although management of Largo has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Largo does not undertake to update any forward-looking statements, except in accordance with applicable securities laws. Readers should also review the risks and uncertainties sections of Largo’s annual and interim MD&As which also apply.

 

Exhibit 99.76

 

 

Consent of Independent Auditor

 

We hereby consent to the incorporation by reference in this Registration Statement on Form 40-F of Largo Resources Ltd. of our report dated March 17, 2021 relating to the consolidated financial statements of Largo Resources Ltd. as at December 31, 2020 and 2019 and January 1, 2019 and for the years ended December 31, 2020 and 2019, which appears in Exhibit 99.69 to this Registration Statement.

 

We also hereby consent to the incorporation by reference in this Registration Statement on Form 40-F of Largo Resources Ltd. of our report dated March 20, 2020 relating to the consolidated financial statements of Largo Resources Ltd. as at and for the years ended December 31, 2019 and 2018, which appears in Exhibit 99.6 to this Registration Statement.

 

We also consent to the reference to us under the heading “Interests of Experts” which appears in the Annual Information Forms included in Exhibits 99.4, 99.12 and 99.67 to this Registration Statement.

 

/s/PricewaterhouseCoopers LLP

 

Chartered Professional Accountants, Licensed Public Accountants

Toronto, Ontario, Canada

April 14, 2021

 

 

PricewaterhouseCoopers LLP

PwC Tower, 18 York Street, Suite 2600, Toronto, Ontario, Canada M5J 0B2

T: +1 416 863 1133, F: +1 416 365 8215, www.pwc.com/ca

 

“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.

 

Exhibit 99.77

 

Consent of Porfírio Cabaleiro Rodriguez

 

The undersigned hereby consents to the use of their report(s), and the information derived therefrom, as well as the reference to their name, in each case where used or incorporated by reference in the Registration Statement on Form 40-F of Largo Resources Ltd. being filed with the United States Securities and Exchange Commission, and any amendments thereto.

 

 

By:

/s/ Porfírio Cabaleiro Rodriguez

 

 

Porfírio Cabaleiro Rodriguez, BSc (Mine Eng.)

 

 

 

Dated: April 14, 2021

 

Exhibit 99.78

 

Consent of Leonardo Apparicio da Silva

 

The undersigned hereby consents to the use of their report(s), and the information derived therefrom, as well as the reference to their name, in each case where used or incorporated by reference in the Registration Statement on Form 40-F of Largo Resources Ltd. being filed with the United States Securities and Exchange Commission, and any amendments thereto.

 

 

By:

/s/ Leonardo Apparicio da Silva

 

 

Leonardo Apparicio da Silva, BSc (Min Eng.), MSc (Met Eng.)

 

 

 

Dated: April 14, 2021

 

 

Exhibit 99.79

 

Consent of Fabio Valerio Xavier

 

The undersigned hereby consents to the use of their report(s), and the information derived therefrom, as well as the reference to their name, in each case where used or incorporated by reference in the Registration Statement on Form 40-F of Largo Resources Ltd. being filed with the United States Securities and Exchange Commission, and any amendments thereto.

 

 

By:

/s/ Fabio Valerio Xavier

 

 

Fabio Valerio Xavier, BSc (Geol.)

 

 

 

Dated: April 14, 2021

 

Exhibit 99.80

 

Consent of Paul Sarjeant

 

The undersigned hereby consents to the use of their report(s), and the information derived therefrom, as well as the reference to their name, in each case where used or incorporated by reference in the Registration Statement on Form 40-F of Largo Resources Ltd. being filed with the United States Securities and Exchange Commission, and any amendments thereto.

 

 

By:

/s/ Paul Sarjeant

 

 

Paul Sarjeant, B.Sc. P. Geo

 

 

 

Dated: April 14, 2021