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Largo looking at further restructuring options as low vanadium prices undermine ramp-up

Vanadium pentoxide flakes produced at the Maracas Menchen mine, in Bahia, Brazil.

Vanadium pentoxide flakes produced at the Maracas Menchen mine, in Bahia, Brazil.

Photo by Largo Resources

16th October 2015

By: Henry Lazenby

Creamer Media Deputy Editor: North America

  

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TORONTO (miningweekly.com) – Canadian project developer Largo Resources is reviewing seven or eight capital restructuring programmes to ensure the company is able to survive a prolonged low vanadium price environment, where no vanadium producer is generating positive cash.

The question whether Largo would have enough cash reserves to see its Brazil-based Maracas Menchen mine ramp up to commercial production, and until the historic low vanadium price had recovered above the production-cost threshold, had weighed heavily on the company’s share price, president and CEO Mark Smith told Mining Weekly Online in an interview.

“We do have cash in the bank – we were very fortunate to have raised C$75.2-million in May and to restructure our Brazilian Development Bank loans to be more advantageous. We are now in discussions to potentially restructure that further – potentially looking at high-yield bonds – so that we can take the principal payments being paid today and try to push it out to the future to try and help our cash position,” he added.

As at June 30, the company had about C$41.52-million cash in the bank, which was expected to be enough to see the Maracas operation through to commercial production.

However, the price for vanadium pentoxide (V2O5) flakes had collapsed and ranged from about $2.90/lb to $3.15/lb – a historic low. “That’s a price point where I can unequivocally say that not one participant in the vanadium industry is generating cash right now, not even us with our very low costs,” Smith stated.

According to market analyst Metal Bulletin, vanadium prices had fallen by more than half since January 2014, when the steel-strengthening metal changed hands at about $6/lb.

Smith noted that Largo was producing material at an average cost of about $3.55/lb and selling it at roughly $3/lb, which meant that, for every pound of vanadium the mine produced, it was losing over $0.50. Taking into account monthly output of about 1.2-million pounds, it meant that the Maracas operation was operating at more than a $500 000-a-month loss against sales.

But Smith underscored the fact that as soon as the operation had reached its sustained nameplate capacity by December, unit production costs should fall to between $3.10/lb and $3.20/lb, which he said would rank Maracas as the lowest-cost pure-play vanadium operation in the world.

“We are aware of the fact that you can’t burn cash forever and we have several programmes and a lot of people working very hard trying to make sure that the company does survive this historic low-pricing situation. I want all our shareholders and debt holders to know how seriously we take this and we are working very hard to ensure we take care of any potential cash issue,” Smith said.

Largo’s TSX-V-listed stock had declined by more than 81% since the start of the year and, on Friday, traded down nearly 3% at C$0.33 apiece.

MARKET DYNAMICS
In general terms, the vanadium market comprised about 100 000 t, where Maracas would produce about 10 000 t/y from December onwards. China produced about 70% of the world’s vanadium, of which more than 90% stayed in the country and was used by its steel producers to harden products.

Vanadium suppliers across the world tended be quite disciplined when the price fell below a certain threshold, suspending operations until conditions improved. Smith said that certain producers at today’s prices were already forced to shutter operations, as evidenced by the bankruptcy of South Africa-based Evraz Highveld Steel and Vanadium and Swiss-held Vanchem Vanadium Products having suspended operations in May.

Several reports had also suggested that certain Chinese operators were shuttering operations. “The pain threshold is getting to the point that the supply side is reacting,” he said.

Smith stressed that vanadium was a very good place to be in, as a potential supply gap was emerging. The demand side was also changing, in that China was starting to enforce improved building codes, which required stronger rebar used in concrete.

“We are blessed with the highest-grade ore in the world and we will soon have the lowest cost in the world. Largo will have the ‘first right’, so to speak, to meet that growing demand,” Smith said.

GROWING PAINS
Production at Maracas Menchen started in August 2014, but mechanical issues had hindered the ramp up.

During August, the Bahia-state project recorded a record performance, when daily production was 29 t of V2O5, or about 110% of the plant's daily design capacity.

However, the operation could not yet sustain this capacity over a monthly period. To achieve this, Smith explained that Largo’s employees at site were being trained to have intimate knowledge of the plant and its machinations, to enable them to understand what impact each action would have on the entire plant.

“We are operating the plant now, it is not operating us. It is a hard threshold to get over on a ramp up. I am extremely comfortable about the operations team right now,” Smith said.

Largo was also implementing engineering improvements to the plant. Smith said several new parts were arriving on site and being installed. “While the operators can currently achieve significant throughput levels, they needed some engineering help to maintain those levels reliably. I am extremely confident that we will be at nameplate capacity by December,” he said.

The engineering improvements focused on adding another leech tank to improve material retention time, which, in turn, would drive recovery improvements. The company was also replacing a pan conveyor that took material from the kiln to the leach tank. The system was not robust enough from the outset, resulting in temperature losses between the two systems, which reduced the efficiency of the leach reaction, Smith explained.

The company was also increasing the belt filter surface area so that it could rinse the material more thoroughly after the leach cycle.

Another important element of the engineering improvements was to improve the concentration of the magnetic portion of the ore as much as possible before going into the system. To this end, the company was adding a third magnetic separator, which was expected to optimise the magnetic recovery in the mill area and optimise the system further downstream.

Improved recoveries would result in less feed material being needed and lower production costs overall.

Smith noted that since around August, recoveries in the leach area had moved up from about 75% to about 90%.

“We don’t believe there are any remaining barriers to achieving commercial production, it’s just a matter of getting these engineering improvements installed and increasing the reliability of the plant.

“We remain very confident of the resource, the metallurgy and the people that are processing the material every day. We also remain very bullish on the long-term value of this project – we’ll get through this,” Smith stated.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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