Largo Inc. (TSX:LGO; NASDAQ:LGO) is looking to capitalize on the demand for vanadium batteries by expanding its partnerships in Italy and Spain, thereby establishing a foothold in Europe. The company is also looking ahead by positioning itself to take advantage of the Inflation Reduction Act and appointing a new CEO.
Largo Inc. is a vanadium company that supplies VPURE and VPURE+, its signature products. Its flagship property is a high-grade vanadium deposit at the Maracas Menchen Mine, located in Brazil. Two major pillars support Largo's business: mining vanadium, and creating energy storage.
Largo and the Changing Landscape of Vanadium
In an interview with Streetwise Reports, Largo announced a number of changes and new initiatives at the company. The first is that Largo is considering bringing on a new CEO. Daniel Tellechea is currently the Interim Chief Executive Officer and steered Largo with two principals in mind: fixed operations, and lower costs. However, Largo has not announced the name of its top candidate yet.
We have seen large shifts in the vanadium market. In the past, battery production only comprised about 1% of the market for vanadium, but Largo expects that to rise to as much as 10% in 2023. The effect of this rise in demand is a steady increase in the price of vanadium.
The Japanese Trade Minister, Yasutoshi Nishimura, remarked "As the demand for electric vehicle batteries is expected to grow significantly, securing important minerals essential for their production is an urgent issue."
The company is also taking steps to expand its foothold overseas in Europe. The company is currently in joint venture negotiations with Salado, a major power generation and gas turbine company owned by the Italian government.
Largo and Salado are looking to combine their technology and engineering expertise, respectively, to create vanadium batteries for renewable energy initiatives. While Largo manufactures the internals for the batteries, Salado will help to create more efficient installation and scaling for various projects.
Largo is almost finished with a project in partnership with Enel Green Power in Spain, where it is looking to integrate a solar farm with vanadium batteries. It reports that it estimates this project to be 90% complete. It reports that it is also ideally positioned relative to the United States Inflation Reduction Act. While they are a Canadian company, many of its operations are located in the United States. Due to their position in the U.S. economy, they anticipate benefitting from government funding.
While it cautiously avoided giving early details, Largo also said that it was in contact with blue chip companies looking for storage alternatives for energy-intensive warehouses and data centers.
Why Vanadium?
Vanadium is a transition metal with applications in the green energy sector, particularly in manufacturing batteries. Investment in green energy infrastructure has driven interest in the mineral for the past few years.
According to Jessica Cummins at Stockhead, Japan and the U.S. struck a trade agreement regarding multiple metals critical to the construction of electric vehicles. The Japanese Trade Minister, Yasutoshi Nishimura, remarked "As the demand for electric vehicle batteries is expected to grow significantly, securing important minerals essential for their production is an urgent issue."
According to another analysis by Stockhead, on March 16th, 2023, in relation to the Critical Raw Minerals Act (CRMA), the European Union (EU) listed vanadium as among thirty-four raw minerals essential to Europe's modern economy. The EU is attempting to source these minerals from sources outside of China, which currently controls the lion's share of the world's critical or strategic raw minerals.
Catalyst: Advancing VRFB and More
Argus' Equity Research Report regards the Maracas Menchen Mine as primed for improved production in the future. Argus notes that the circumstances that kept production down in 2022, such as unusually high rainfall and a change in mining contractors, are unlikely to repeat themselves. CIBC Capital Markets also noted that heavy rainfall inhibited the mine's performance in 2022, but that "the vanadium market has seen strength driven by the China re-opening narrative."
Aside from the bullish vanadium market, Largo has a few future initiatives that it expects to boost the company's value. Its business strategy is reportedly based on two goals: becoming a leader in the industry through its outlined growth plan, and supporting a low-carbon future through energy storage.
Argus' Equity Research Report regards the Maracas Menchen Mine as primed for improved production in the future.
Largo expects to have its Ilmenite plant online by Q3 2023, and for it to generate revenue in 2024. It expects to implement its titanium production strategy over the course of six years, in three phases. Largo expects to begin the project in 2025, and for this endeavor to bring in more revenue than vanadium production.
Largo is also advancing its clean energy division and expects that its Vanadium Redox Flow Battery (VRFB) for Enel Green Power in Spain will be installed in Q2 of 2023. The company is also in joint venture negotiations with Ansaldo Green Tech with the goal of reaching a jurisdictional agreement to produce VRFBs.
Ownership and Share Structure
Streetwise Ownership Overview*Largo reports that institutions hold 16,137,220 shares (25.21%), while insiders hold 428,507 shares (0.67%). VC/PE firms (>5% stake) hold 28,039,020 shares (43.81%). The remaining 30% of shares are held by the public or other entities.
The institutions that hold the largest amount of shares in the company are Arias Resource Capital Management LP with 28,039,020, West Family Investments LLC with 5,572,637, Grantham Mayo Van Otterloo & Co. LLC with 4,903,767, and BNY Asset Management with 1,175,900 shares. Arias Resource Capital and the PE Fund represent strategic investors. Alberto Arias is also the Chairman of the Board.
Largo has US$62.7 million in the bank as of September 30th, 2022.
Largo's market cap is CA$470 million or US$340 million. There are 64 million shares, 341 thousand warrants (US$13.00 per share), and 800 thousand options (407 thousand exercisable, with an average price of US$13.39 per share). They trade in the 52-week period between 6.34 and 16.40.
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