Largo(LGO) - 2023 Q3 - Quarterly Report

Unaudited Condensed Interim Consolidated Financial Statements Presents the company's financial position, performance, and cash flows for the interim period, prepared in accordance with IAS 34 Condensed Interim Consolidated Statements of Financial Position The company's financial position shows increased assets and liabilities, resulting in a decrease in total equity as of September 30, 2023 Consolidated Statement of Financial Position Highlights (in thousands of U.S. dollars) | Financial Item | September 30, 2023 | December 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Total Current Assets | $137,153 | $154,144 | ($16,991) | | Total Non-current Assets | $235,093 | $201,606 | $33,487 | | Total Assets | $372,246 | $355,750 | $16,496 | | Total Current Liabilities | $46,118 | $38,973 | $7,145 | | Total Non-current Liabilities | $63,264 | $42,223 | $21,041 | | Total Liabilities | $109,382 | $81,196 | $28,186 | | Total Equity | $262,864 | $274,554 | ($11,690) | Condensed Interim Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) The company reported a significant shift to a net loss of $19.1 million for the nine months ended September 30, 2023, driven by decreased revenues and increased operating costs Income Statement Summary (in thousands of U.S. dollars) | Metric | Nine Months 2023 | Nine Months 2022 | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $154,514 | $181,750 | $43,983 | $54,258 | | Operating Costs | ($131,540) | ($125,264) | ($42,580) | ($45,602) | | Net Income (Loss) | ($19,057) | $13,410 | ($11,884) | ($2,601) | | Basic EPS | ($0.30) | $0.21 | ($0.19) | ($0.04) | | Diluted EPS | ($0.30) | $0.21 | ($0.19) | ($0.04) | Condensed Interim Consolidated Statements of Changes in Equity Total equity decreased to $262.9 million primarily due to the net loss for the period, partially offset by currency translation adjustments Equity Reconciliation (in thousands of U.S. dollars) | Description | Amount | | :--- | :--- | | Balance at December 31, 2022 | $274,554 | | Share-based payments | ($593) | | Currency translation adjustment | $7,960 | | Net loss for the period | ($19,057) | | Balance at September 30, 2023 | $262,864 | Condensed Interim Consolidated Statements of Cash Flows The company experienced a $14.9 million decrease in cash, with operating and financing inflows offset by significant investing outflows for property, plant, and equipment Cash Flow Summary (Nine Months Ended Sept 30, in thousands of U.S. dollars) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $15,352 | $8,889 | | Net Cash from Financing Activities | $22,341 | $2,357 | | Net Cash Used in Investing Activities | ($53,041) | ($33,328) | | Net Change in Cash | ($14,899) | ($21,077) | | Cash Position - End of Period | $39,572 | $62,713 | Notes to the Unaudited Condensed Interim Consolidated Financial Statements Provides detailed explanations and breakdowns of the figures presented in the consolidated financial statements Note 1: Nature of operations and liquidity%20Nature%20of%20operations%20and%20liquidity) Largo Inc. operates as a vanadium producer and clean energy developer, currently addressing liquidity challenges through debt and strategic alternatives - The company's core operations involve producing and supplying vanadium products, alongside developing vanadium redox flow battery technology (VRFB) and managing physical vanadium investments (LPV)[10] - Largo is facing liquidity challenges due to declining operating results and is exploring options such as securing additional debt and considering strategic alternatives for its Largo Clean Energy business, which may include a partial or full sale[12][13] Note 2: Statement of compliance%20Statement%20of%20compliance) These unaudited interim financial statements comply with International Accounting Standard (IAS) 34, Interim Financial Reporting - The financial statements adhere to IAS 34, Interim Financial Reporting[16] Note 3: Basis of preparation, significant accounting policies, and future accounting changes%20Basis%20of%20preparation,%20significant%20accounting%20policies,%20and%20future%20accounting%20changes) Accounting policies remain consistent with prior annual statements, with financial figures presented in thousands of U.S. dollars - Accounting policies are consistent with the 2022 annual statements, and the presentation currency is thousands of U.S. dollars[17][18] Note 4: Amounts receivable%20Amounts%20receivable) Total amounts receivable increased to $28.2 million, primarily due to higher trade receivables and recoverable taxes in Brazil Breakdown of Amounts Receivable (in thousands of U.S. dollars) | Category | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Trade receivables | $22,193 | $18,285 | | Current taxes recoverable - Brazil | $4,887 | $2,156 | | Other | $1,134 | $534 | | Total | $28,214 | $20,975 | Note 5: Inventory%20Inventory) Inventory levels slightly decreased to $62.6 million, with a $1.64 million write-down recognized for vanadium finished products Inventory Breakdown (in thousands of U.S. dollars) | Category | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Finished products - Vanadium | $44,339 | $48,546 | | Warehouse materials | $16,209 | $14,393 | | Other | $2,099 | $1,282 | | Total | $62,647 | $64,221 | - A net realizable value write-down of $1,644 thousand was recognized for vanadium finished products during the nine months ended September 30, 2023[23] Note 6: Other intangible assets%20Other%20intangible%20assets) The net book value of intangible assets, including intellectual property and software, decreased to $6.5 million due to depreciation Intangible Assets (in thousands of U.S. dollars) | Category | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Intellectual Property | $3,166 | $3,493 | | Software | $3,295 | $3,770 | | Net Book Value | $6,461 | $7,263 | Note 7: Mine properties, plant and equipment%20Mine%20properties,%20plant%20and%20equipment) The net book value of mine properties, plant, and equipment significantly increased to $201.1 million due to substantial additions Net Book Value of PP&E (in thousands of U.S. dollars) | Category | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Mine Properties | $83,821 | $67,709 | | Plant and Equipment | $65,717 | $73,235 | | Construction In Progress | $47,417 | $29,424 | | Other | $4,122 | $4,869 | | Total | $201,077 | $175,237 | - The company holds a 99.94% economic interest in the Maracás Menchen Mine, which is subject to various net smelter royalties (NSR)[27] Note 8: Accounts payable and accrued liabilities%20Accounts%20payable%20and%20accrued%20liabilities) Total accounts payable and accrued liabilities remained stable at $27.0 million, with shifts between accounts payable and accrued liabilities Accounts Payable & Accrued Liabilities (in thousands of U.S. dollars) | Category | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Accounts payable | $20,000 | $20,459 | | Accrued liabilities | $4,936 | $3,122 | | Accrued financial costs | $1,391 | $287 | | Other taxes | $690 | $3,092 | | Total | $27,017 | $26,960 | Note 9: Debt%20Debt) Total debt significantly increased by 62.5% to $65.0 million due to new debt facilities and repayments during the period Debt Reconciliation (in thousands of U.S. dollars) | Description | Amount | | :--- | :--- | | Total debt at Dec 31, 2022 | $40,000 | | Proceeds from new debt | $40,000 | | Repayment of debt | ($15,000) | | Total debt at Sep 30, 2023 | $65,000 | - In January 2023, the company secured two debt facilities totaling $25,000[37] - In September 2023, it secured a new three-year facility and repaid an existing $15,000 facility[38] Note 10: Issued capital%20Issued%20capital) Issued capital increased slightly to $412.3 million due to the exercise of restricted share units, raising outstanding shares to 64,051 thousand Issued Capital Reconciliation (Nine months ended Sep 30, 2023) | Description | Number of Shares (000's) | Cost (in thousands of U.S. dollars) | | :--- | :--- | :--- | | Balance, beginning of period | 64,006 | $411,646 | | Exercise of restricted share units | 45 | $645 | | Balance, end of period | 64,051 | $412,291 | Note 11: Equity reserves%20Equity%20reserves) Equity reserves decreased to $12.0 million due to forfeitures and expirations of share-based awards, resulting in a $593 thousand payment recovery Equity Reserves Summary (in thousands of U.S. dollars) | Category | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | RSUs | $722 | $1,440 | | Options | $4,534 | $5,899 | | Warrants | $6,721 | $6,799 | | Total | $11,977 | $14,138 | - For the nine months ended September 30, 2023, the company recognized a share-based payment recovery of $593 thousand, compared to an expense of $1,432 thousand in the prior-year period[42] Note 12: Earnings (loss) per share%20Earnings%20(loss)%20per%20share) Potentially issuable shares totaling 1,501 thousand were excluded from diluted loss per share calculations due to their anti-dilutive effect - A total of 1,501 thousand potentially issuable shares were anti-dilutive and thus excluded from the diluted loss per share calculation for the nine months ended September 30, 2023[48] Note 13: Taxes%20Taxes) Total tax expense significantly decreased to $381 thousand, while the net deferred income tax asset slightly declined Tax Expense Summary (Nine months ended, in thousands of U.S. dollars) | Tax Item | September 30, 2023 | September 30, 2022 | | :--- | :--- | :--- | | Income tax expense | ($48) | ($9,024) | | Deferred income tax (expense) recovery | ($333) | $1,171 | | Total | ($381) | ($7,853) | Note 14: Related party transactions%20Related%20party%20transactions) Key management remuneration decreased to $2.4 million, primarily due to lower share-based payments compared to the prior year Key Management Remuneration (Nine months ended, in thousands of U.S. dollars) | Category | 2023 | 2022 | | :--- | :--- | :--- | | Short-term benefits | $1,979 | $3,017 | | Share-based payments | $450 | $1,584 | | Total | $2,429 | $4,601 | Note 15: Segmented disclosure%20Segmented%20disclosure) The company reported a net loss before tax of $18.7 million, with Largo Clean Energy being the largest contributor to the loss Segment Performance (Nine months ended Sep 30, 2023, in thousands of U.S. dollars) | Segment | Revenues (after eliminations) | Net Income (Loss) | | :--- | :--- | :--- | | Sales & trading | $130,312 | ($1,136) | | Mine properties | $21,574 | ($3,459) | | Corporate | $2,628 | ($5,133) | | Largo Clean Energy | $0 | ($16,486) | | Largo Physical Vanadium | $0 | ($2,039) | | Total | $154,514 | ($19,057) | Note 16: Commitments and contingencies%20Commitments%20and%20contingencies) The company has various commitments, including management contracts and purchase orders, and has recognized a $6.1 million provision for a legal proceeding - Key commitments include management contracts ($1.8M), a 10-year vanadium off-take agreement, purchase orders ($7.6M), and office leases ($0.2M)[63][64][67] - A provision of $6.1 million has been recognized for a legal proceeding in Brazil concerning a supply agreement for the Maracás Menchen Mine[68] Note 17: Financial instruments%20Financial%20instruments) The company manages financial instruments, including cash, receivables, payables, and debt, addressing fair value, credit, liquidity, and market risks Fair Value%20Fair%20value) The carrying amounts of financial instruments generally approximate their fair values, with cash classified as Level 1 - The carrying amounts of financial instruments like receivables, payables, and debt approximate their fair values[76] - Cash is classified as Level 1 in the fair value hierarchy[76] Credit Risk%20Credit%20risk) Credit risk is mitigated through high-rated bank deposits and credit insurance for sales, with no credit losses reported - Credit risk is minimized by holding cash in high-rated banks and protecting sales outside Brazil with credit insurance policies or requiring letters of credit[79][81] - No credit losses were experienced in the first nine months of 2023[81] Liquidity Risk%20Liquidity%20risk) Liquidity risk is managed through operational cash flows and cash on hand, with $35.4 million in contractual liabilities due within six months Contractual Cash Flow Requirements (in thousands of U.S. dollars) | Period | Amount | | :--- | :--- | | Less than 6 months | $35,373 | | 6 months to 1 year | $8,960 | | 1 to 3 years | $57,241 | | Over 3 years | $23 | Market Risk%20Market%20risk) The company faces no floating interest rate risk on debt but is exposed to foreign currency risk on certain cash balances - The company has no debt subject to floating interest rates as of September 30, 2023[84] - Foreign currency risk exists for cash balances held in Canadian dollars, Euros, and Swiss francs[86] Note 18: Revenues%20Revenues) Total revenues decreased to $154.5 million, primarily driven by lower FeV revenues compared to the prior-year period Revenue by Product (Nine months ended, in thousands of U.S. dollars) | Product | 2023 | 2022 | | :--- | :--- | :--- | | V2O5 revenues | $97,883 | $101,805 | | V2O3 revenues | $8,730 | $4,280 | | FeV revenues | $47,794 | $75,665 | | Iron ore sales | $107 | $0 | | Total | $154,514 | $181,750 | Note 19: Expenses%20Expenses) Total operating costs increased to $131.5 million, while finance costs surged to $6.9 million due to higher interest and asset write-downs Operating Costs Breakdown (Nine months ended, in thousands of U.S. dollars) | Category | 2023 | 2022 | | :--- | :--- | :--- | | Direct mine and production costs | $77,761 | $66,120 | | Product acquisition costs | $13,380 | $20,651 | | Depreciation and amortization | $19,456 | $14,923 | | Other | $20,943 | $23,570 | | Total Operating Costs | $131,540 | $125,264 | Finance Costs Breakdown (Nine months ended, in thousands of U.S. dollars) | Category | 2023 | 2022 | | :--- | :--- | :--- | | Interest expense and fees | $5,296 | $575 | | Write-down of vanadium assets | $1,327 | $0 | | Other | $238 | $212 | | Total Finance Costs | $6,861 | $787 | Note 20: Subsequent events%20Subsequent%20events) Subsequent to the reporting period, the company refinanced a $20.0 million debt facility with a new three-year term in October 2023 - In October 2023, the company refinanced a $20,000 debt facility with a new three-year facility bearing an interest rate of 8.90% p.a[92]