Largo Inc. (LGO) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to Largo's Second Quarter 2026 Earnings Call. This conference is being recorded, and the replay will be available at the company's website at largoinc.com. [Operator Instructions]. Questions must be submitted in writing using a Q&A function on the webcast platform. The company will be reviewing the questions received and select a number for management to address. Similar questions may be combined and we may not be able to answer a question submitted. Before we continue, please note that today's discussion may include forward-looking statements and references to non-GAAP financial measures. These statements are subject to the risks and uncertainties described in Largo's public filings. Reconciliations of non-GAAP measures and additional information are included in the company's second quarter 2026 earnings release. financial statements and MD&A. Presented in this conference, we have Mr. Alberto Arias, Executive Chairman and Co-Chief Executive Officer; and Mr. Jim Bannantine, Co-Chief Executive Officer; Now I will turn the conference over to Mr. Arias and Mr. Bannantine. Please, you may begin your conference.

Thank you, and good afternoon, everyone, and thank you for joining us today. The second quarter show us the work underway across Largo is gaining real momentum. We produce more, sold more grow revenue and return to positive adjusted EBITDA. Just as importantly, the progress we made since the quarter end across our balance sheet our U.S. commercial position and our copper PGM initiatives have strengthened the business and broaden the opportunities ahead. Let's start with our second quarter operating results. Order availability improved during the quarter. Total ore mine increased 46.6% year-over-year to 712,198 tons, reflecting better mine access and continued improvement in execution. The better all availability together with improved plant stability helped lift vanadium production 28.5% to 2,900 tons near the upper end of our quarterly guidance range. For the first half of the year, production reached 5,516 tons up 55.2% from the same period last year. Importantly, our commercial performance kept pace with the improvement in production. Vanadium sales increased 53% to 2,773 tons of vanadium pentoxide equivalent. Ilmenite concentrate sales also performed well increasing 67% to 10,059 tons. The market backdrop also became more supportive. European vanadium pentoxide benchmark averaged $6.03 per pound up 17.5% year-over-year. European ferrovanadium prices increased 15.6%, while the average U.S. ferrovanadium benchmark also rose 45.8%. The stronger pricing flow through our realized revenue per pound sold which increased to $6.96 from $5.80 in the first quarter and $6.39 a year ago. The combination of higher volumes and better pricing translated directly into our financial results. Revenue increased 68.5% and to $44 million, including $42 million from vanadium and $1.4 million from ilmenite. Jim.?

Thanks, Alberto. This is Jim. On the financial front, -- adjusted EBITDA returned to positive territory at $2.7 million compared with $34,000 a year ago. Mining operations adjusted EBITDA increased 64.8% and to $4.4 million. Cash generation improved as well. Cash provided before working capital items more than tripled to $6.6 million from $2.2 million in the prior year period. Turning to costs. The quarter reflected a combination of higher input prices and increased operating activity as sales volumes grew. Cash operating costs, excluding royalties, were $5.10 per pound sold compared with $4.63 a year ago. On an adjusted basis, cash operating costs, excluding royalties, were $4.12 per pound compared with $3.18 per pound a year ago. These reflect the increased material costs from the Iran war. The increase largely reflected the higher prices for diesel, explosives and sulfur derived agents together with a higher level of activity needed to support the increased sales. Some of these pressures are external, but the response is within our control in the form of disciplined execution, stable plant performance and tighter cost management. As production and sales strengthen, our goal is to convert that momentum into better unit economics, margins and cash generation. On the bottom line, we reported a net loss of $22.7 million. It is important that result in the context. The quarter included significant noncash items. -- principally a write-down of vanadium assets and a deferred income tax expense. It also included higher operating professional and finance costs. We don't minimize the reported loss, but the return to positive adjusted EBITDA and the improvement in cash provided before working capital adjustments show that the underlying business moved in the right direction.

Let me now turn on what happens since the quarter end because these developments meaningfully change the context for Largo. First, we added to the management team, Jim Bannantine, as co-CEO of Largo. I have known Jim for over 15 years when my private equity fund was 1 of the largest shareholders of Aura Minerals. Jim was appointed CEO of Aura back then, and I saw firsthand the positive contribution Jim had with -- to that company, which was a great investment for my fund and all its shareholders. Moving back to Largo. On June 30, Largo had $5.1 million in cash and $114.2 million in debt addressing our short-term maturities was therefore an immediate priority. On August 20, we announced a binding agreement with Banco do Brazil BTG, Bradesco, Santander and Caixa Economica Federal to restructure approximately $82.2 million of outstanding commercial debt. The agreement extends the final maturity from September 2026 to March 2030, materially reducing near-term refinancing risk. Under the revised terms, principal payments benefit from a 6-month grace period, followed by a 36-month quarterly principal amortization while interest remains paid monthly. This is an important milestone for Largo and addresses a key near-term financial priority. The revised schedule improves our near-term liquidity profile and gives us greater runway to execute our operating plan, improve cash generation and advance the value creation opportunities at Maracas Menken and the Largo in general. Jim? .

Thanks, Alberto. And meanwhile, back in the United States, 2 developments have strengthened our commercial position. First, on July 7, Logo secured a $60.1 million delivery order from the U.S. Defense Logistics Agency's strategic materials department under our existing 5-year contract with that agency. This order is a strong endorsement of our product quality and commercial capabilities. and it reinforces Largo's role in U.S. critical mineral supply chains. Second, we received greater clarity on U.S. trade policy and tariffs. Vanadium oxides and hydroxides under HT SUS classification 2825.30 were expressly exempt from the additional 25% tariff recently applied to certain Brazilian products. As a result, Brazilian origin V205 imported under this classification is not subject to the new Brazil-specific tariff, an important outcome for our valuable high-purity business. The exemption unfortunately does not extend to ferrovanadium exported directly from Brazil. However, our exposure is limited here because the majority of Largo's fair vanadium sales to the U.S. are not supplied directly from Brazil. We are also moving quickly to unlock more value from the material we already mined Marakas mentioned.

Yes. Brazil's National Mining Agency approved our request to produce and sell copper, platinum group metals nickel cobalt as byproducts from our existing operation. Following successful industrial scale test, we began full-scale copper PGM concentrate production on August 7 and using our existing Illumina flotation infrastructure. What makes these opportunities especially compelling is its economics. Copper PGM concentrate is a byproduct of vanadium production. So most of its costs are shared with our primary operation. Combined with the use of infrastructure already in place and the absence of material capital expenditure, this makes copper PGM a high-margin new revenue stream that can significantly improve resource utilization and unlock additional value for Maracas Menchen Mine. To maximize this opportunity during the initial ramp-up, we have temporarily post ilmenite concentrate production and are prioritizing copper PGM output through the existing flotation circuit. At the same time, we are evaluating additional equipment that would allow us to recover ilmenite from copper flotation tailings and capture value for both products streams over time.

Commercial discussions with potential smelters and traders are progressing for our first copper PGM shipment. As our operational and commercial opportunities expand, we have strengthened the leadership team as well to help drive the next phase of our execution. As we look ahead, our previously issued vanadium guidance remains unchanged. And we are also introducing initial guidance for copper PGM concentrate. We continue to expect full year vanadium production of 10,500 to 12,000 tons of vanadium condoxide equivalent and sales of 7,500 and to 9,500 tons. We're also maintaining our adjusted cash operating cost guidance at this point of $3.50 to $4.50 per pound. For copper PGM concentrate, our initial guidance is 300 to 380 tons per month with expected average grades of approximately 15% copper grams per ton of PGMs and gold and 53 grams per ton of silver. We expect output to become progressively more consistent within this range as we continue to optimize the operation.

With that road map in place, our focus is on execution, sustaining the improvement at the Maracas Menken operations meeting our vanadium production and sales targets fulfilling the DLA order and ramping up copper PGM production. It also means converting grading operating stability and higher volumes into lower unit cost and a stronger cash generation. The debt restructuring gives us greater financial flexibility to advance these priorities and further strengthen Largo's financial position. Taken together, -- these developments give Largo stronger foundation and several clear avenues for growth. We are the world's largest primary vanadium producer with an established high purity business and growing relevance to U.S. critical mineral supply chains. Copper PGM broadens our opportunity by allowing us to capture additional value from the resource and infrastructure already in place at the Americas Menken operations. We still have work to do, particularly on cost and cash generation, but we believe Largo enters the second half of the year with stronger operations, greater financial flexibility and more opportunities to create value.

Thank you again, Alberto. And I just am very pleased to have joined Largo is such an important point for the company. The progress described in this call gives us a solid platform but there's still a great deal of work to do. My focus is straightforward, build on the improving consistency at Marcos Menken Mine, strengthened cost and cash performance, and help the team capture the opportunities in front of us. Largo has a strong operating asset, and established position in vanadium and growing relevance to critical mineral supply chains in the United States. The DLA order and copper PGM production give us practical avenues to create value while the debt restructuring gives us greater runway to pursue them. I look forward to working with Alberto, the Board and the entire Largo team to turn this momentum into consistent results. Thank you. .

Thank you, Jim, and thank you to all of our employees, customers and shareholders for their continued support. Operator, we are now ready to take questions. .

Thank you. We will now start Q&A. [Operator Instructions]. We already received our first question. How does the debt restructuring change Lagos priorities over the next 12 months?

Yes. No, thank you. Well, the restructuring gives us this runway that we need, but does not change our focus on financial discipline. This extension of approximately $82 million of commercial bank debt from September 2026, which is next month to March 2030, have removed a significant near-term refinancing pressure. And we also are going to be benefiting from this 6-month principal rate period followed by the quarterly amortizations over 36 months. Our priorities continue to be on improvements of cash flow generations to fulfill the DLA contract, which is extremely important for us and the ramp-up and improvements of the copper PGM production that we have been discussing in this conference call. As we have performance improved, we remain focused on reducing debt and in strengthening the balance sheet.

The next question comes from Tate Sullivan with Maxim Group. How might the U.S. defense logistics agency, managed the buying piece of anipiom from LagomDLA make cash payments for forward supply delivery. Based on developments and the vanadium flow battery market, do you think that the value of our Venetia flow battery venture investments has increased?

Why don't I take the fiscal listric agency and Alberto can talk about the batteries. The Nevis logistics agency contract Remember, it's a stockpiling objective by the U.S. government of Strategic Materials. So the deliveries -- initial delivery schedule is 20 tonnes per week, which is governed by the Defense Logistics Agency's logistics capability to accept the material in their warehouse. So we'll have at least 20 tonnes a week, but as the warehouse availability and loading capacity becomes available, we could accelerate that, the DLA has told us that. The DLA remember pays us on a net 30 basis for whatever we deliver. So if we accelerate deliveries then we'll accelerate cash receipts. .

Right. And the question on the vanadium flow battery. That's a very exciting part of the vanadium story in general. From a supply-demand perspective, what we have seen is the biggest increase in demand coming out of this industry, primarily in China. . I think China is demonstrating to the world commercial flow gather is a commercial reality for the vanadium industry. And we're seeing it firsthand through our joint venture partnership in storion, where we have 37%. Our partners are seeing significant increase in demand for vanadium coming on flow battery projects that are focused on data centers.

[Operator Instructions] Our next question comes from Gael Price. Do you think that the final terms of the debt restructuring will require Largo to raise equity or other punitive terms for the currently shareholders. .

Right. No, thank you for the question. And probably that's driven by the last year debt extension we did. Now there has not been asked by the banks. And that's obviously, the details of the final documentation are going to come out probably in the middle of September, but we are very, very grateful for the Brazilian banks. They've been very supportive. They've been very commercial. So the binding terms, and I think that's reflect what the agreement is, and people will have to wait for a few weeks for the final documentation, but I think the essence of the transaction has been announced yesterday.