Largo Inc.
Unaudited Condensed Interim Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2022 and 2021
(Expressed in thousands / 000's of U.S. dollars)
Table of Contents
Largo Inc.
Expressed in thousands / 000's of U.S. dollars
Condensed Interim Consolidated Statements of Financial Position
As at | |||||||
September 30, | December 31, | ||||||
Notes | 2022 | 2021 | |||||
Assets | |||||||
Current Assets | |||||||
Cash | $ | 62,713 | $ | 83,790 | |||
Restricted cash | 448 | 448 | |||||
Amounts receivable | 4 | 25,872 | 23,684 | ||||
Inventory | 5 | 70,686 | 45,322 | ||||
Prepaid expenses | 12,534 | 6,734 | |||||
Total Current Assets | 172,253 | 159,978 | |||||
Non-current Assets | |||||||
Other intangible assets | 6 | 7,369 | 3,929 | ||||
Mine properties, plant and equipment | 7 | 158,689 | 146,659 | ||||
Vanadium assets | 3(b) | 4,996 | - | ||||
Deferred income tax asset | 13(b) | 4,262 | 3,343 | ||||
Total Non-current Assets | 175,316 | 153,931 | |||||
Total Assets | $ | 347,569 | $ | 313,909 | |||
Liabilities | |||||||
Current Liabilities | |||||||
Accounts payable and accrued liabilities | 8 | $ | 33,152 | $ | 19,723 | ||
Deferred revenue | 3,410 | 5,469 | |||||
Current portion of lease liability | 576 | 563 | |||||
Current portion of provisions | 6,018 | 913 | |||||
Debt | 9 | 15,000 | 15,000 | ||||
Total Current Liabilities | 58,156 | 41,668 | |||||
Non-current Liabilities | |||||||
Non-current accounts payable and accrued liabilities | 8 | 333 | - | ||||
Lease liability | 1,605 | 1,987 | |||||
Provisions | 4,249 | 4,557 | |||||
Total Non-current Liabilities | 6,187 | 6,544 | |||||
Total Liabilities | 64,343 | 48,212 | |||||
Equity | |||||||
Issued capital | 10 | 411,624 | 415,982 | ||||
Equity reserves | 11 | 17,793 | 17,814 | ||||
Accumulated other comprehensive loss | (118,227 | ) | (118,772 | ) | |||
Deficit | (37,163 | ) | (49,327 | ) | |||
Equity attributable to owners of the Company | 274,027 | 265,697 | |||||
Non-controlling Interest | 9,199 | - | |||||
Total Equity | 283,226 | 265,697 | |||||
Total Liabilities and Equity | $ | 347,569 | $ | 313,909 | |||
Commitments and contingencies | 7, 16 | ||||||
Subsequent events | 20 |
Largo Inc.
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 | Nine Months ended | ||||||||||||
September 30, | September 30, | ||||||||||||
Notes | 2022 | 2021 | 2022 | 2021 | |||||||||
Revenues | 18 | $ | 54,258 | $ | 53,861 | $ | 181,750 | $ | 147,954 | ||||
Expenses | |||||||||||||
Operating costs | 19 | (45,602 | ) | (32,126 | ) | (125,264 | ) | (95,264 | ) | ||||
Professional, consulting and management fees | (7,246 | ) | (4,889 | ) | (19,542 | ) | (12,942 | ) | |||||
Foreign exchange gain (loss) | 967 | (826 | ) | 1,910 | 531 | ||||||||
Other general and administrative expenses | (4,108 | ) | (989 | ) | (10,865 | ) | (4,260 | ) | |||||
Share-based payments | 11 | (131 | ) | (578 | ) | (1,432 | ) | (1,982 | ) | ||||
Finance costs | 19 | (296 | ) | (344 | ) | (787 | ) | (767 | ) | ||||
Interest income | 401 | 102 | 798 | 266 | |||||||||
Technology start-up costs | 303 | - | (4,514 | ) | - | ||||||||
Exploration and evaluation costs | (506 | ) | (742 | ) | (791 | ) | (1,440 | ) | |||||
(56,218 | ) | (40,392 | ) | (160,487 | ) | (115,858 | ) | ||||||
Net income (loss) before tax | $ | (1,960 | ) | $ | 13,469 | $ | 21,263 | $ | 32,096 | ||||
Income tax expense | 13(a) | (1,307 | ) | (2,569 | ) | (9,024 | ) | (5,028 | ) | ||||
Deferred income tax recovery (expense) | 13(a) | 666 | (1,707 | ) | 1,171 | (5,286 | ) | ||||||
Net income (loss) | $ | (2,601 | ) | $ | 9,193 | $ | 13,410 | $ | 21,782 | ||||
Items that subsequently will be reclassified to operations: | |||||||||||||
Unrealized (loss) gain on foreign currency translation | (6,702 | ) | (12,467 | ) | 591 | (6,248 | ) | ||||||
Comprehensive income (loss) | $ | (9,303 | ) | $ | (3,274 | ) | $ | 14,001 | $ | 15,534 | |||
Net income (loss) attributable to: | |||||||||||||
Owners of the Company | $ | (2,104 | ) | $ | 9,193 | $ | 14,187 | $ | 21,782 | ||||
Non-controlling interests | $ | (497 | ) | $ | - | $ | (777 | ) | $ | - | |||
$ | (2,601 | ) | $ | 9,193 | $ | 13,410 | $ | 21,782 | |||||
Comprehensive income (loss) attributable to: | |||||||||||||
Owners of the Company | $ | (8,852 | ) | $ | (3,274 | ) | $ | 14,732 | $ | 15,534 | |||
Non-controlling interests | $ | (451 | ) | $ | - | $ | (731 | ) | $ | - | |||
$ | (9,303 | ) | $ | (3,274 | ) | $ | 14,001 | $ | 15,534 | ||||
Basic earnings (loss) per Common Share | 12 | $ | (0.04 | ) | $ | 0.14 | $ | 0.21 | $ | 0.34 | |||
Diluted earnings (loss) per Common Share | 12 | $ | (0.04 | ) | $ | 0.14 | $ | 0.21 | $ | 0.34 | |||
Weighted Average Number of Shares Outstanding (in 000's) | |||||||||||||
- Basic | 12 | 64,217 | 64,682 | 64,594 | 63,819 | ||||||||
- Diluted | 12 | 64,217 | 65,724 | 64,899 | 64,919 |
Largo Inc.
Expressed in thousands / 000's of U.S. dollars and shares
Condensed Interim Consolidated Statements of Changes in Equity
Attributable to owners of the Company | |||||||||||||||||||||
Issued | Equity | Accumulated Other | Non-controlling | Shareholders' | |||||||||||||||||
Shares | Capital | Reserves | Comprehensive Loss | Deficit | interest | Equity | |||||||||||||||
Balance at December 31, 2020 | 58,779 | $ | 406,214 | $ | 21,291 | $ | (108,438 | ) | $ | (71,903 | ) | $ | - | $ | 247,164 | ||||||
Share-based payments | - | - | 1,982 | - | - | - | 1,982 | ||||||||||||||
Exercise of warrants | 5,723 | 7,982 | (5,344 | ) | - | - | - | 2,638 | |||||||||||||
Exercise of stock options | 156 | 944 | (421 | ) | - | - | - | 523 | |||||||||||||
Exercise of restricted share units | 68 | 838 | (838 | ) | - | - | - | - | |||||||||||||
Expiry of warrants | - | - | (5 | ) | - | 5 | - | - | |||||||||||||
Currency translation adjustment | - | - | - | (6,248 | ) | - | - | (6,248 | ) | ||||||||||||
Net income for the period | - | - | - | - | 21,782 | - | 21,782 | ||||||||||||||
Balance at September 30, 2021 | 64,726 | $ | 415,978 | $ | 16,665 | $ | (114,686 | ) | $ | (50,116 | ) | $ | - | $ | 267,841 | ||||||
Balance at December 31, 2021 | 64,727 | $ | 415,982 | $ | 17,814 | $ | (118,772 | ) | $ | (49,327 | ) | $ | - | $ | 265,697 | ||||||
Share-based payments | - | - | 1,432 | - | - | - | 1,432 | ||||||||||||||
Exercise of warrants | 10 | 124 | (34 | ) | - | - | - | 90 | |||||||||||||
Exercise of stock options | 36 | 320 | (133 | ) | - | - | - | 187 | |||||||||||||
Exercise of restricted share units | 105 | 1,286 | (1,286 | ) | - | - | - | - | |||||||||||||
Share repurchase | (873 | ) | (6,088 | ) | - | - | - | - | (6,088 | ) | |||||||||||
Sale of non-controlling interest (note 3) | - | - | - | - | (2,023 | ) | 9,930 | 7,907 | |||||||||||||
Currency translation adjustment | - | - | - | 545 | - | 46 | 591 | ||||||||||||||
Net income (loss) for the period | - | - | - | - | 14,187 | (777 | ) | 13,410 | |||||||||||||
Balance at September 30, 2022 | 64,005 | $ | 411,624 | $ | 17,793 | $ | (118,227 | ) | $ | (37,163 | ) | $ | 9,199 | $ | 283,226 |
Largo Inc.
Expressed in thousands / 000's of U.S. dollars
Condensed Interim Consolidated Statements of Cash Flows
Three Months ended | Nine Months ended | ||||||||||||
September 30, | September 30, | ||||||||||||
Notes | 2022 | 2021 | 2022 | 2021 | |||||||||
Operating Activities | |||||||||||||
Net income (loss) for the period | $ | (2,601 | ) | $ | 9,193 | $ | 13,410 | $ | 21,782 | ||||
Adjustment for Non-cash Items | |||||||||||||
Depreciation | 5,858 | 5,084 | 16,553 | 16,343 | |||||||||
Share-based payments | 11 | 131 | 578 | 1,432 | 1,982 | ||||||||
Unrealized foreign exchange loss (gain) | 1,777 | 2,247 | (1,267 | ) | 523 | ||||||||
Non-cash listing expense | 3 | 604 | - | 604 | - | ||||||||
Finance costs | 19 | 296 | 344 | 787 | 767 | ||||||||
Interest income | (401 | ) | (102 | ) | (798 | ) | (266 | ) | |||||
Income tax expense | 13(a) | 1,307 | 2,569 | 9,024 | 5,028 | ||||||||
Deferred income tax (recovery) expense | 13(a) | (666 | ) | 1,707 | (1,171 | ) | 5,286 | ||||||
Income tax paid | (1,977 | ) | (1,306 | ) | (3,095 | ) | (2,185 | ) | |||||
Cash Provided Before Working Capital Items | 4,328 | 20,314 | 35,479 | 49,260 | |||||||||
Change in amounts receivable | 8,034 | 1,839 | (1,899 | ) | (4,235 | ) | |||||||
Change in inventory | (6,480 | ) | (5,472 | ) | (27,471 | ) | (9,711 | ) | |||||
Change in prepaid expenses | (2,203 | ) | (1,318 | ) | (6,215 | ) | (2,799 | ) | |||||
Changes in accounts payable and accrued liabilities and provisions | 5,472 | 1,772 | 11,054 | 3,171 | |||||||||
Change in deferred revenue | 886 | (1,623 | ) | (2,059 | ) | 664 | |||||||
Net Cash Provided by Operating Activities | 10,037 | 15,512 | 8,889 | 36,350 | |||||||||
Financing Activities | |||||||||||||
Receipt of debt | 9 | - | - | 15,000 | 15,000 | ||||||||
Repayment of debt | 9 | - | - | (15,000 | ) | (24,788 | ) | ||||||
Interest received | 401 | 102 | 798 | 266 | |||||||||
Lease payments | (149 | ) | (91 | ) | (427 | ) | (91 | ) | |||||
Change in restricted cash | 15,524 | (302 | ) | - | (448 | ) | |||||||
Sale of non-controlling interest | 3 | 7,547 | - | 7,797 | - | ||||||||
Share repurchase | 10 | (5,765 | ) | - | (6,088 | ) | - | ||||||
Issuance of common shares | 11 | 93 | 369 | 277 | 3,161 | ||||||||
Net Cash Provided by (Used in) Financing Activities | 17,651 | 78 | 2,357 | (6,900 | ) | ||||||||
Investing Activities | |||||||||||||
Intangible assets | (1,745 | ) | - | (3,434 | ) | - | |||||||
Mine properties, plant and equipment | (10,936 | ) | (6,145 | ) | (24,898 | ) | (20,414 | ) | |||||
Vanadium assets | (4,996 | ) | - | (4,996 | ) | - | |||||||
Net Cash Used in Investing Activities | (17,677 | ) | (6,145 | ) | (33,328 | ) | (20,414 | ) | |||||
Effect of foreign exchange on cash | (176 | ) | (2,547 | ) | 1,005 | (614 | ) | ||||||
Net Change in Cash | 9,835 | 6,898 | (21,077 | ) | 8,422 | ||||||||
Cash position - beginning of the period | 52,878 | 80,669 | 83,790 | 79,145 | |||||||||
Cash Position - end of the period | $ | 62,713 | $ | 87,567 | $ | 62,713 | $ | 87,567 |
Largo Inc. 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 Inc. ("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. The Company is also focused on the advancement of renewable energy storage solutions through Largo Clean Energy and its vanadium redox flow battery technology. The Company is in the process of vertically integrating its vanadium production operations with its vanadium redox flow battery technology. 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.
On November 8, 2021, the Company changed its legal name from Largo Resources Ltd. to Largo Inc.
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") and on the Nasdaq Stock Market ("Nasdaq"). 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 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 8, 2022.
3) 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, 2021 and should be read in conjunction with those statements.
In September 2022, the Company's subsidiary, Largo Physical Vanadium Corp. ("LPV"), completed a reverse takeover of Column Capital Corp. ("CPC") whereby the shareholders of LPV obtained control of CPC. The combined entity was named Largo Physical Vanadium Corp. and commenced trading on the TSX Venture Exchange. The fair value of the shares issued by LPV exceeded the fair value of CPC's net assets by $604, which was recorded as a listing expense. As part of the transaction, the Company invested cash of C$20,000 and vanadium assets with a fair value at the time of investment of C$7,264 into LPV. LPV received cash from other investors of C$10,220 and incurred share issuance costs of C$638 in connection with this transaction. The difference of $2,023 between the proceeds from the share issuance and the increase in non-controlling interests was recognized in equity.
In addition to the Company's subsidiaries disclosed in note 3 of the Company's audited annual consolidated financial statements for the year ended December 31, 2021, at September 30, 2022 the Company owned 65.7% of LPV and accounted for it as a consolidated subsidiary.
These unaudited condensed interim consolidated financial statements are presented in thousands of U.S. dollars, unless otherwise noted. References to the symbol "C$" 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 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 3(d) of the Company's audited annual consolidated financial statements for the year ended December 31, 2021. There have been no significant changes to the areas of estimation and judgment during the three and nine months ended September 30, 2022.
Largo Inc. Expressed in thousands / 000's of U.S. dollars and shares (except per share information) Notes to the Unaudited Condensed Interim Consolidated Financial Statements |
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, 2021, with the exception of the following additional accounting policy.
Vanadium assets
Vanadium assets are the quantities of vanadium owned by LPV that are intended to be held for rental to others and long-term price appreciation. This differs from the quantities held for sale to customers that are recognized as finished products inventory. Vanadium assets are measured at cost less accumulated impairment losses. The initial cost of vanadium assets comprises its purchase price or cost of production. Purchased vanadium assets are recognized on the date that control of the vanadium asset passes to the Company.
4) Amounts receivable
September 30, | December 31, | |||||
2022 | 2021 | |||||
Trade receivables | $ | 20,931 | $ | 22,144 | ||
Current taxes recoverable - Brazil | 4,487 | 1,154 | ||||
Current taxes recoverable - Other | 426 | 358 | ||||
Other receivables | 28 | 28 | ||||
Total | $ | 25,872 | $ | 23,684 |
5) Inventory
September 30, | December 31, | |||||
2022 | 2021 | |||||
Finished products | $ | 52,626 | $ | 32,069 | ||
Work-in-process | 486 | 967 | ||||
Stockpiles | 477 | 593 | ||||
Warehouse materials | 17,097 | 11,693 | ||||
Total | $ | 70,686 | $ | 45,322 |
During the three and nine months ended September 30, 2022, the Company recognized a net realizable value allowance of $1,655 and $1,655 for finished products (three and nine months ended September 30, 2021 - $nil and $2) and $nil and $287 for warehouse materials (three and nine months ended September 30, 2021 - $nil and $nil). At September 30, 2022, the net realizable value allowance was $1,655 for finished products and $287 for warehouse materials (note 19) (December 31, 2021 - $558 and $nil). As inventory is sold, previously recorded net realizable value write-downs are reclassified from inventory allowance to direct mine and mill costs or product acquisition costs as appropriate (note 19).
6) Other intangible assets
During the three and nine months ended September 30, 2022, the Company began capitalizing costs relating to a software implementation. The estimated useful life is 5 years.
Largo Inc. Expressed in thousands / 000's of U.S. dollars and shares (except per share information) Notes to the Unaudited Condensed Interim Consolidated Financial Statements |
Intellectual | |||||||||
Property | Software | Total | |||||||
Cost | |||||||||
Balance at December 31, 2020 | $ | 4,366 | $ | - | $ | 4,366 | |||
Additions | - | - | - | ||||||
Balance at December 31, 2021 | $ | 4,366 | $ | - | $ | 4,366 | |||
Additions | - | 3,831 | 3,831 | ||||||
Balance at September 30, 2022 | $ | 4,366 | $ | 3,831 | $ | 8,197 | |||
Accumulated Depreciation | |||||||||
Balance at December 31, 2020 | $ | - | $ | - | $ | - | |||
Depreciation | 437 | - | 437 | ||||||
Balance at December 31, 2021 | $ | 437 | $ | - | $ | 437 | |||
Depreciation | 327 | 64 | 391 | ||||||
Balance at September 30, 2022 | $ | 764 | $ | 64 | $ | 828 | |||
Net Book Value | |||||||||
At December 31, 2021 | $ | 3,929 | $ | - | $ | 3,929 | |||
At September 30, 2022 | $ | 3,602 | $ | 3,767 | $ | 7,369 |
7) Mine properties, plant and equipment
At September 30, 2022 and December 31, 2021, 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.
Office and | Buildings, | |||||||||||||||||
Computer | Mine | Plant and | Construction | |||||||||||||||
Equipment | Vehicles | Properties | Equipment | In Progress | Total | |||||||||||||
Cost | ||||||||||||||||||
Balance at December 31, 2020 | $ | 919 | $ | 261 | $ | 91,444 | $ | 153,743 | $ | 8,308 | $ | 254,675 | ||||||
Additions | 3,278 | - | 7,884 | 6,122 | 11,639 | 28,923 | ||||||||||||
Disposals | (177 | ) | - | - | (6 | ) | - | (183 | ) | |||||||||
Reclassifications | - | - | - | 14,862 | (14,862 | ) | - | |||||||||||
Effects of changes in foreign exchange rates | (52 | ) | (18 | ) | (4,851 | ) | (11,487 | ) | 28 | (16,380 | ) | |||||||
Balance at December 31, 2021 | $ | 3,968 | $ | 243 | $ | 94,477 | $ | 163,234 | $ | 5,113 | $ | 267,035 | ||||||
Additions | 2,053 | 61 | 3,239 | 7,031 | 13,199 | 25,583 | ||||||||||||
Disposals | - | - | - | (4,205 | ) | - | (4,205 | ) | ||||||||||
Reclassifications | - | - | - | 3,523 | (3,523 | ) | - | |||||||||||
Effects of changes in foreign exchange rates | 19 | 6 | 2,094 | 5,395 | (344 | ) | 7,170 | |||||||||||
Balance at September 30, 2022 | $ | 6,040 | $ | 310 | $ | 99,810 | $ | 174,978 | $ | 14,445 | $ | 295,583 |
Largo Inc. 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 | Buildings, | |||||||||||||||||
Computer | Mine | Plant and | Construction | |||||||||||||||
Equipment | Vehicles | Properties | Equipment | In Progress | Total | |||||||||||||
Accumulated Depreciation | ||||||||||||||||||
Balance at December 31, 2020 | $ | 523 | $ | 261 | $ | 26,940 | $ | 77,986 | $ | - | $ | 105,710 | ||||||
Depreciation | 194 | - | 7,069 | 15,031 | - | 22,294 | ||||||||||||
Disposals | (177 | ) | - | - | (6 | ) | - | (183 | ) | |||||||||
Effects of changes in foreign exchange rates | (32 | ) | (18 | ) | (1,559 | ) | (5,836 | ) | - | (7,445 | ) | |||||||
Balance at December 31, 2021 | $ | 508 | $ | 243 | $ | 32,450 | $ | 87,175 | $ | - | $ | 120,376 | ||||||
Depreciation | 754 | 2 | 3,518 | 13,591 | - | 17,865 | ||||||||||||
Disposals | - | - | - | (4,205 | ) | - | (4,205 | ) | ||||||||||
Effects of changes in foreign exchange rates | 7 | 7 | 590 | 2,254 | - | 2,858 | ||||||||||||
Balance at September 30, 2022 | $ | 1,269 | $ | 252 | $ | 36,558 | $ | 98,815 | $ | - | $ | 136,894 | ||||||
Net Book Value | ||||||||||||||||||
At December 31, 2021 | $ | 3,460 | $ | - | $ | 62,027 | $ | 76,059 | $ | 5,113 | $ | 146,659 | ||||||
At September 30, 2022 | $ | 4,771 | $ | 58 | $ | 63,252 | $ | 76,163 | $ | 14,445 | $ | 158,689 |
8) Accounts payable and accrued liabilities
September 30, | December 31, | |||||
2022 | 2021 | |||||
Accounts payable | $ | 21,177 | $ | 14,050 | ||
Accrued liabilities | 3,501 | 2,962 | ||||
Accrued financial costs | 238 | 174 | ||||
Other taxes | 8,569 | 2,537 | ||||
Total | $ | 33,485 | $ | 19,723 | ||
Current | $ | 33,152 | $ | 19,723 | ||
Non-current | 333 | - | ||||
Total | $ | 33,485 | $ | 19,723 |
9) Debt
September 30, | December 31, | |||||
2022 | 2021 | |||||
Total debt | $ | 15,000 | $ | 15,000 |
Cash flows | ||||||||||||
December 31, | September 30, | |||||||||||
2021 | Proceeds | Repayment | 2022 | |||||||||
Total debt | $ | 15,000 | $ | 15,000 | $ | (15,000 | ) | $ | 15,000 | |||
Total liabilities from financing activities | $ | 15,000 | $ | 15,000 | $ | (15,000 | ) | $ | 15,000 |
Largo Inc. Expressed in thousands / 000's of U.S. dollars and shares (except per share information) Notes to the Unaudited Condensed Interim Consolidated Financial Statements |
Cash flows | ||||||||||||
December 31, | December 31, | |||||||||||
2020 | Proceeds | Repayment | 2021 | |||||||||
Total debt | $ | 24,788 | $ | 15,000 | $ | (24,788 | ) | $ | 15,000 |
Credit facilities
In April 2022, the Company repaid in full its $15,000 working capital facility with a bank in Brazil. At the same time, the Company secured a new working capital facility with another bank in Brazil. This facility was fully drawn down and proceeds of $15,000 (R$69,000) were received. This facility is due to be repaid as a lump sum payment in April 2023, together with accrued interest at a rate of 3.65% per annum.
10) Issued capital
a) Authorized
Unlimited common shares without par value.
b) Issued
Nine months ended | Year ended | |||||||||||
September 30, 2022 | December 31, 2021 | |||||||||||
Number of | Number of | |||||||||||
Shares | Cost | Shares | Cost | |||||||||
Balance, beginning of the period | 64,727 | $ | 415,982 | 58,779 | $ | 406,214 | ||||||
Exercise of warrants (note 11) | 10 | 124 | 5,723 | 7,982 | ||||||||
Exercise of stock options (note 11) | 36 | 320 | 156 | 944 | ||||||||
Exercise of restricted share units (note 11) | 105 | 1,286 | 69 | 842 | ||||||||
Share repurchase | (873 | ) | (6,088 | ) | - | - | ||||||
Balance, end of the period | 64,005 | $ | 411,624 | 64,727 | $ | 415,982 |
During the nine months ended September 30, 2022, the Company paid $6,088 for the repurchase and cancellation of 873 shares.
On March 4, 2021, the Company completed the consolidation of its issued and outstanding common shares on the basis of one post-consolidation common share for every 10 pre-consolidation common shares. Any quantity relating to common shares, RSUs, stock options and warrants or any per unit price such as exercise prices disclosed throughout the condensed interim consolidated financial statements have been retrospectively adjusted for the share consolidation, including the weighted average number of shares outstanding and the basic and diluted earnings (loss) per share for the periods presented.
Largo Inc. 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) Equity reserves
RSUs | Options | Warrants | |||||||||||||||||||||||||
Weighted | Weighted | ||||||||||||||||||||||||||
average | average | ||||||||||||||||||||||||||
exercise | exercise | Total | |||||||||||||||||||||||||
Number | Value | Number | price | Value | Number | price | Value | value | |||||||||||||||||||
December 31, 2020 | 226 | $ | 1,329 | 588 | C$8.27 | 3,207 | 8,366 | C$4.88 | $ | 16,755 | $ | 21,291 | |||||||||||||||
Share-based payments | - | 587 | - | - | 998 | - | - | - | 1,585 | ||||||||||||||||||
Granted | 76 | 499 | 467 | 15.59 | 1,081 | - | - | - | 1,580 | ||||||||||||||||||
Exercised | (81 | ) | (842 | ) | (164 | ) | (4.68 | ) | (421 | ) | (6,527 | ) | (2.94 | ) | (5,344 | ) | (6,607 | ) | |||||||||
Expired | - | - | - | - | - | (7 | ) | (2.90 | ) | (5 | ) | (5 | ) | ||||||||||||||
Forfeited | (5 | ) | (22 | ) | (2 | ) | (6.70 | ) | (8 | ) | - | - | - | (30 | ) | ||||||||||||
December 31, 2021 | 216 | $ | 1,551 | 889 | C$12.78 | 4,857 | 1,832 | C$11.78 | $ | 11,406 | $ | 17,814 | |||||||||||||||
Share-based payments | - | 476 | - | - | 1,025 | - | - | - | 1,501 | ||||||||||||||||||
Granted | 111 | 460 | 230 | 14.57 | 376 | - | - | - | 836 | ||||||||||||||||||
Exercised | (122 | ) | (1,286 | ) | (36 | ) | (6.70 | ) | (133 | ) | (10 | ) | (11.50 | ) | (34 | ) | (1,453 | ) | |||||||||
Forfeited | (4 | ) | (7 | ) | (208 | ) | (13.23 | ) | (898 | ) | - | - | - | (905 | ) | ||||||||||||
September 30, 2022 | 201 | $ | 1,194 | 875 | C$13.39 | 5,227 | 1,822 | C$11.78 | $ | 11,372 | $ | 17,793 |
a) RSUs
During the three and nine months ended September 30, 2022, the Company granted 111 RSUs to officers and employees of the Company. These RSUs vest over time, with one-third vesting during each of the three month periods ending June 30, 2023, June 30, 2024 and June 30, 2025. 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
Weighted | Weighted | Weighted | |||||||||||||||
average | average | average | |||||||||||||||
No. | No. | remaining | exercise | grant date | |||||||||||||
Range of prices | outstanding | exercisable | life (years) | price | share price | ||||||||||||
C$ | 6.70 - 10.00 | 326 | 238 | 2.5 | C$ | 6.70 | C$ | 6.70 | |||||||||
10.01 - 15.00 | 150 | - | 0.3 | 13.87 | 13.87 | ||||||||||||
15.01 - 20.00 | 338 | 108 | 4.1 | 17.12 | 17.12 | ||||||||||||
20.01 - 25.00 | 29 | 29 | 0.9 | 24.00 | 24.00 | ||||||||||||
30.01 - 30.40 | 32 | 32 | 1.3 | 30.40 | 30.40 | ||||||||||||
875 | 407 | C$ | 13.39 |
During the nine months ended September 30, 2022, the Company granted 230 (year ended December 31, 2021 - 467) stock options with a weighted average exercise price of C$14.57. The options vest over time, with one-third of a grant of 176 vesting during each of the three month periods ending June 30, 2023, June 30, 2024 and June 30, 2025. One-third of a grant of 54 vest during each of the three month periods ending March 31, 2023 and March 31, 2024.
The estimated weighted average grant date fair value for these grants was C$9.15 per stock option, as determined using the Black-Scholes valuation model and the following assumptions: risk free interest rate - 2.46%, expected life in years - 5, expected volatility - 76.3%, expected dividends - 0% and expected forfeiture rate - 0%.
Largo Inc. Expressed in thousands / 000's of U.S. dollars and shares (except per share information) Notes to the Unaudited Condensed Interim Consolidated Financial Statements |
The remaining weighted average contractual life of options outstanding at September 30, 2022 was 2.6 years (December 31, 2021 - 2.6 years).
c) Warrants
Expected | Risk-free | |||||||||||||||||||||||||
No. | No. | Grant | Expiry | Exercise | Expected | Expected | dividend | Interest | ||||||||||||||||||
outstanding | exercisable | Date | Date | price | volatility | life (years) | yield | rate | ||||||||||||||||||
339 | 339 | 11/30/17 | 11/30/22 | C$ | 11.50 | 93% | 5.00 | 0% | 2% | |||||||||||||||||
1,142 | 1,142 | 12/13/17 | 12/13/22 | C$ | 11.50 | 93% | 5.00 | 0% | 2% | |||||||||||||||||
341 | 341 | 12/07/20 | 12/08/25 | C$ | 13.00 | 88% | 5.00 | 0% | 0% | |||||||||||||||||
1,822 | 1,822 | C$ | 11.78 |
12) 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 2,898 and 2,370 for the three and nine months ended September 30, 2022 (three and nine months ended September 30, 2021 - 227 and 130).
13) Taxes
a) Tax expense
Three months ended | Nine months ended | |||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||
2022 | 2021 | 2022 | 2021 | |||||||||
Income tax expense | $ | (1,307 | ) | $ | (2,569 | ) | $ | (9,024 | ) | $ | (5,028 | ) |
Deferred income tax recovery (expense) | 666 | (1,707 | ) | 1,171 | (5,286 | ) | ||||||
Total | $ | (641 | ) | $ | (4,276 | ) | $ | (7,853 | ) | $ | (10,314 | ) |
b) Changes in deferred tax assets and liabilities
Nine months | ||||||
ended | Year ended | |||||
September 30, | December 31, | |||||
2022 | 2021 | |||||
Net deferred income tax asset, beginning of the period | $ | 3,343 | $ | 7,178 | ||
Deferred income tax recovery (expense) | 1,171 | (3,758 | ) | |||
Effect of foreign exchange | (252 | ) | (77 | ) | ||
Net deferred income tax asset, end of the period | $ | 4,262 | $ | 3,343 | ||
September 30, | December 31, | |||||
2022 | 2021 | |||||
Deferred income tax asset | $ | 4,262 | $ | 3,343 | ||
Net deferred income tax asset | $ | 4,262 | $ | 3,343 |
Largo Inc. Expressed in thousands / 000's of U.S. dollars and shares (except per share information) Notes to the Unaudited Condensed Interim Consolidated Financial Statements |
14) 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.
The remuneration of directors and other members of key management personnel during the period was as follows:
Three months ended | Nine months ended | |||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||
2022 | 2021 | 2022 | 2021 | |||||||||
Short-term benefits | $ | 494 | $ | 716 | $ | 3,017 | $ | 2,890 | �� | |||
Share-based payments | 323 | 396 | 1,584 | 1,569 | ||||||||
Total | $ | 817 | $ | 1,112 | $ | 4,601 | $ | 4,459 |
Refer to note 16 for additional commitments with management.
15) Segmented disclosure
The Company has six operating segments: sales & trading, mine properties, corporate, exploration and evaluation properties ("E&E properties") (included as part of inter-segment transactions & other), Largo Clean Energy and Largo Physical Vanadium. 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. Largo Physical Vanadium was incorporated by the Company during the three and nine months ended September 30, 2022. The Company held a 65.7% interest in Largo Physical Vanadium at September 30, 2022.
Largo Inc. Expressed in thousands / 000's of U.S. dollars and shares (except per share information) Notes to the Unaudited Condensed Interim Consolidated Financial Statements |
Inter- | |||||||||||||||||||||
Largo | Largo | segment | |||||||||||||||||||
Sales & | Mine | Clean | Physical | transactions | |||||||||||||||||
trading | properties | Corporate | Energy | Vanadium | & other | Total | |||||||||||||||
Three months ended September 30, 2022 | |||||||||||||||||||||
Revenues | $ | 47,000 | $ | 45,441 | $ | 39,709 | $ | - | $ | - | $ | (77,892 | ) | $ | 54,258 | ||||||
Operating costs | (56,843 | ) | (36,203 | ) | (38,413 | ) | - | - | 85,857 | (45,602 | ) | ||||||||||
Professional, consulting and management fees | (303 | ) | (1,181 | ) | (1,753 | ) | (2,813 | ) | (1,196 | ) | - | (7,246 | ) | ||||||||
Foreign exchange (loss) gain | (47 | ) | 972 | 22 | 7 | 13 | - | 967 | |||||||||||||
Other general and administrative expenses | (132 | ) | (2,433 | ) | (362 | ) | (1,232 | ) | 50 | 11 | (4,108 | ) | |||||||||
Share-based payments | - | - | (131 | ) | - | - | - | (131 | ) | ||||||||||||
Finance costs | (5 | ) | (253 | ) | (2 | ) | (24 | ) | (9 | ) | (3) 1 | (296 | ) | ||||||||
Interest income | - | 137 | 107 | - | 157 | - | 401 | ||||||||||||||
Technology start-up costs | - | - | - | 791 | - | (488) 1 | 303 | ||||||||||||||
Exploration and evaluation costs | - | (505 | ) | - | - | - | (1) 2 | (506 | ) | ||||||||||||
(57,330 | ) | (39,466 | ) | (40,532 | ) | (3,271 | ) | (985 | ) | 85,366 | (56,218 | ) | |||||||||
Net income (loss) before tax | (10,330 | ) | 5,975 | (823 | ) | (3,271 | ) | (985 | ) | 7,474 | (1,960 | ) | |||||||||
Income tax (expense) recovery | 771 | (2,078 | ) | - | - | - | - | (1,307 | ) | ||||||||||||
Deferred income tax recovery (expense) | 288 | 648 | (270 | ) | - | - | - | 666 | |||||||||||||
Net income (loss) | $ | (9,271 | ) | $ | 4,545 | $ | (1,093 | ) | $ | (3,271 | ) | $ | (985 | ) | $ | 7,474 | $ | (2,601 | ) | ||
Revenues (after elimination of inter-segment transactions) | $ | 47,000 | $ | 7,258 | $ | - | $ | - | $ | - | $ | 54,258 | |||||||||
At September 30, 2022 | �� | ||||||||||||||||||||
Total non-current assets | $ | 1,195 | $ | 131,029 | $ | 19,972 | $ | 14,721 | $ | 5,503 | $ | 2,896 | $ | 175,316 | |||||||
Total assets | $ | 83,268 | $ | 228,599 | $ | 96,463 | $ | 22,192 | $ | 27,557 | $ | (110,510)3 | $ | 347,569 | |||||||
Total liabilities | $ | 59,057 | $ | 51,388 | $ | 51,580 | $ | 6,121 | $ | 740 | $ | (104,543)4 | $ | 64,343 |
1. Amounts relating to Largo Titânio Ltda. and Largo Tech Ltda., which are not an operating segment.
2. Amount relating to E&E properties.
3. Inter-segment transaction elimination of $113,517 partially offset by Largo Titânio Ltda. and Largo Tech Ltda. total assets of $3,003 and E&E properties total assets of $4.
4. Inter-segment transaction elimination of $104,687 partially offset by Largo Titânio Ltda. and Largo Tech Ltda. total liabilities of $144 and E&E properties total liabilities of nil.
Largo Inc. Expressed in thousands / 000's of U.S. dollars and shares (except per share information) Notes to the Unaudited Condensed Interim Consolidated Financial Statements |
Inter- | ||||||||||||||||||
Largo | segment | |||||||||||||||||
Sales & | Mine | Clean | transactions | |||||||||||||||
trading | properties | Corporate | Energy | & other | Total | |||||||||||||
Three months ended September 30, 2021 | ||||||||||||||||||
Revenues | $ | 43,898 | $ | 52,644 | $ | 46,042 | $ | - | $ | (88,723 | ) | $ | 53,861 | |||||
Operating costs | (40,245 | ) | (30,356 | ) | (44,311 | ) | - | 82,786 | (32,126 | ) | ||||||||
Professional, consulting and | ||||||||||||||||||
management fees | (360 | ) | (1,007 | ) | (1,745 | ) | (1,776 | ) | (1 | ) 1 | (4,889 | ) | ||||||
Foreign exchange loss | (55 | ) | (415 | ) | (350 | ) | (6 | ) | - | (826 | ) | |||||||
Other general and administrative | ||||||||||||||||||
expenses | (109 | ) | (236 | ) | (273 | ) | (368 | ) | (3 | ) 1 | (989 | ) | ||||||
Share-based payments | - | - | (578 | ) | - | - | (578 | ) | ||||||||||
Finance costs | (8 | ) | (312 | ) | (4 | ) | (20 | ) | - | (344 | ) | |||||||
Interest income | - | 70 | 32 | - | - | 102 | ||||||||||||
Exploration and evaluation costs | - | (733 | ) | - | - | (9 | ) 1 | (742 | ) | |||||||||
(40,777 | ) | (32,989 | ) | (47,229 | ) | (2,170 | ) | 82,773 | (40,392 | ) | ||||||||
Net income (loss) before tax | 3,121 | 19,655 | (1,187 | ) | (2,170 | ) | (5,950 | ) | 13,469 | |||||||||
Income tax expense | (158 | ) | (2,411 | ) | - | - | - | (2,569 | ) | |||||||||
Deferred income tax expense | - | (1,405 | ) | (302 | ) | - | - | (1,707 | ) | |||||||||
Net income (loss) | $ | 2,963 | $ | 15,839 | $ | (1,489 | ) | $ | (2,170 | ) | $ | (5,950 | ) | $ | 9,193 | |||
Revenues | ||||||||||||||||||
(after elimination of inter-segment | ||||||||||||||||||
transactions) | $ | 43,642 | $ | 9,108 | $ | 1,111 | $ | - | $ | 53,861 | ||||||||
At December 31, 2021 | ||||||||||||||||||
Total non-current assets | $ | 961 | $ | 123,783 | $ | 18,303 | $ | 10,884 | $ | - | $ | 153,931 | ||||||
Total assets | $ | 56,631 | $ | 191,086 | $ | 111,703 | $ | 18,084 | $ | (63,595 | ) | $ | 313,909 | |||||
Total liabilities | $ | 39,907 | $ | 34,604 | $ | 21,467 | $ | 6,488 | $ | (54,254 | ) | $ | 48,212 |
1. Amount relating to E&E properties.
Largo Inc. Expressed in thousands / 000's of U.S. dollars and shares (except per share information) Notes to the Unaudited Condensed Interim Consolidated Financial Statements |
Inter- | |||||||||||||||||||||
Largo | Largo | segment | |||||||||||||||||||
Sales & | Mine | Clean | Physical | transactions | |||||||||||||||||
trading | properties | Corporate | Energy | Vanadium | & other | Total | |||||||||||||||
Nine months ended September 30, 2022 | |||||||||||||||||||||
Revenues | $ | 155,621 | $ | 148,334 | $ | 128,659 | $ | - | $ | - | $ | (250,864 | ) | $ | 181,750 | ||||||
Operating costs | (150,635 | ) | (105,335 | ) | (124,080 | ) | - | - | 254,786 | (125,264 | ) | ||||||||||
Professional, consulting and management fees | (1,364 | ) | (3,784 | ) | (5,227 | ) | (7,463 | ) | (1,704 | ) | - | (19,542 | ) | ||||||||
Foreign exchange (loss) gain | (130 | ) | 1,916 | 100 | 5 | 19 | - | 1,910 | |||||||||||||
Other general and administrative expenses | (380 | ) | (5,751 | ) | (1,170 | ) | (3,429 | ) | (6 | ) | (129) 1 | (10,865 | ) | ||||||||
Share-based payments | - | - | (1,432 | ) | - | - | - | (1,432 | ) | ||||||||||||
Finance costs | (19 | ) | (666 | ) | (8 | ) | (63 | ) | (10 | ) | (21) 1 | (787 | ) | ||||||||
Interest income | - | 434 | 207 | - | 157 | - | 798 | ||||||||||||||
Technology start-up costs | - | - | - | (3,775 | ) | - | (739) 1 | (4,514 | ) | ||||||||||||
Exploration and evaluation costs | - | (786 | ) | - | - | - | (5) 2 | (791 | ) | ||||||||||||
(152,528 | ) | (113,972 | ) | (131,610 | ) | (14,725 | ) | (1,544 | ) | 253,892 | (160,487 | ) | |||||||||
Net income (loss) before tax | 3,093 | 34,362 | (2,951 | ) | (14,725 | ) | (1,544 | ) | 3,028 | 21,263 | |||||||||||
Income tax expense | (185 | ) | (8,839 | ) | - | - | - | - | (9,024 | ) | |||||||||||
Deferred income tax | |||||||||||||||||||||
recovery (expense) | (99 | ) | 2,235 | (965 | ) | - | - | - | 1,171 | ||||||||||||
Net income (loss) | $ | 2,809 | $ | 27,758 | $ | (3,916 | ) | $ | (14,725 | ) | $ | (1,544 | ) | $ | 3,028 | $ | 13,410 | ||||
Revenues | |||||||||||||||||||||
(after elimination of inter-segment transactions) | $ | 155,621 | $ | 25,815 | $ | 314 | $ | - | $ | - | $ | 181,750 |
1. Amounts relating to Largo Titânio Ltda. and Largo Tech Ltda., which are not an operating segment.
2. Amount relating to E&E properties.
Largo Inc. Expressed in thousands / 000's of U.S. dollars and shares (except per share information) Notes to the Unaudited Condensed Interim Consolidated Financial Statements |
Inter- | ||||||||||||||||||
Largo | segment | |||||||||||||||||
Sales & | Mine | Clean | transactions | |||||||||||||||
trading | properties | Corporate | Energy | & other | Total | |||||||||||||
Nine months ended September 30, 2021 | ||||||||||||||||||
Revenues | $ | 124,236 | $ | 122,590 | $ | 105,136 | $ | - | $ | (204,008 | ) | $ | 147,954 | |||||
Operating costs | (108,391 | ) | (81,075 | ) | (101,021 | ) | - | 195,223 | (95,264 | ) | ||||||||
Professional, consulting and management fees | (1,119 | ) | (2,986 | ) | (5,090 | ) | (3,746 | ) | (1 | ) 1 | (12,942 | ) | ||||||
Foreign exchange (loss) gain | (119 | ) | 484 | 172 | (6 | ) | - | 531 | ||||||||||
Other general and administrative expenses | (290 | ) | (1,003 | ) | (1,575 | ) | (1,389 | ) | (3 | ) 1 | (4,260 | ) | ||||||
Share-based payments | - | - | (1,982 | ) | - | - | (1,982 | ) | ||||||||||
Finance costs | (24 | ) | (691 | ) | (9 | ) | (43 | ) | - | (767 | ) | |||||||
Interest income | - | 169 | 97 | - | - | 266 | ||||||||||||
Exploration and evaluation costs | - | (1,427 | ) | - | - | (13) 1 | (1,440 | ) | ||||||||||
(109,943 | ) | (86,529 | ) | (109,408 | ) | (5,184 | ) | 195,206 | (115,858 | ) | ||||||||
Net income (loss) before tax | 14,293 | 36,061 | (4,272 | ) | (5,184 | ) | (8,802 | ) | 32,096 | |||||||||
Income tax expense | (994 | ) | (4,034 | ) | - | - | - | (5,028 | ) | |||||||||
Deferred income tax expense | - | (4,443 | ) | (843 | ) | - | - | (5,286 | ) | |||||||||
Net income (loss) | $ | 13,299 | $ | 27,584 | $ | (5,115 | ) | $ | (5,184 | ) | $ | (8,802 | ) | $ | 21,782 | |||
Revenues (after elimination of inter-segment transactions) | $ | 122,433 | $ | 22,852 | $ | 2,669 | $ | - | $ | 147,954 |
1. Amount relating to E&E properties.
16) Commitments and contingencies
At September 30, 2022, the Company was party to certain management and consulting contracts. Minimum commitments under the agreements are approximately $2,589 and all payable within one year. These contracts also require that additional payments of up to approximately $3,884 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 2021, the Company signed a 10-year exclusive off-take agreement with a third party for the purchase of all standard and high purity grade vanadium products they produce. The annual quantity to be delivered to the Company in 2022 is 220 tonnes of V2O5, with the Company having a right of first refusal over additional amounts.
The Company's Largo Clean Energy business is required to pay a royalty of 7.5% of the net sales price of each VRFB which contains a manufactured licensed product or uses or transfers a licensed product on or after January 1, 2022. Refer to note 7 for details of the royalties payable at the Maracás Menchen Mine.
The Company is committed to a minimum amount of rental payments under five leases of office space which expire between December 31, 2022 and May 1, 2027. Minimum rental commitments remaining under the leases are approximately $455, including $250 due within one year.
At the Company's Maracás Menchen Mine and at Largo Clean Energy, 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, 2022 of $11,101.
Largo Inc. Expressed in thousands / 000's of U.S. dollars and shares (except per share information) Notes to the Unaudited Condensed Interim Consolidated Financial Statements |
The Company and its subsidiaries are party to legal proceedings regarding labour matters. A provision was recorded at December 31, 2021 for such proceedings in Brazil in an amount of R$469 ($84). At September 30, 2022, the provision recognized was R$758 ($140). The outcome of these proceedings remains dependent on the final judgment. 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.
17) Financial instruments
Financial assets and financial liabilities at September 30, 2022 and December 31, 2021 were as follows:
September 30, | December 31, | |||||
2022 | 2021 | |||||
Cash | $ | 62,713 | $ | 83,790 | ||
Restricted cash | 448 | 448 | ||||
Trade and other receivables | 20,959 | 22,172 | ||||
Accounts payable and accrued liabilities (including non-current) | 33,485 | 19,723 | ||||
Lease liability (including non-current) | 2,181 | 2,550 | ||||
Debt | 15,000 | 15,000 |
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.
The carrying amounts for cash, restricted cash, trade receivables and amounts receivable, accounts payable and accrued liabilities 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, 2021. 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.
Largo Inc. Expressed in thousands / 000's of U.S. dollars and shares (except per share information) Notes to the Unaudited Condensed Interim Consolidated Financial Statements |
b) Credit risk
The Company's maximum amount of credit risk is primarily attributable to cash, restricted 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, the U.S. 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 $20,931, $8,406 relates to customers in Brazil, which are not covered by the Company's credit insurance policies. The ratings for these companies range from B- to AAA. 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 September 30, 2022, no amounts are past due and in the nine months ended September 30, 2022, the Company has not experienced any credit losses. At September 30, 2022, the loss allowance for trade receivables was determined to be $58 (December 31, 2021 - $58), with any movement recognized as a component of finance costs (note 19). 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 September 30, 2022 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 8) | $ | 33,152 | $ | - | $ | 333 | $ | - | ||||
Debt (note 9) | - | 15,000 | - | - | ||||||||
Total | $ | 33,152 | $ | 15,000 | $ | 333 | $ | - |
The Company's principal sources of liquidity are its cash flows from operating activities and cash of $62,713 (December 31, 2021 - $83,790).
d) Market risk
Interest rate risk
The Company's interest rate exposure is limited to that portion of its debt that is subject to floating interest rates. At September 30, 2022, the Company had no debt that is subject to floating interest rates and does not have any exposure to floating interest rates.
Foreign currency risk
At September 30, 2022, the Company's outstanding debt is 100% denominated in U.S. dollars (December 31, 2021 - 100% U.S. dollar denominated).
The impact of fluctuations in foreign currency on cash and restricted 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, 2022, the Company's U.S. dollar functional currency entities had cash denominated in Canadian dollars, Euros and Swiss francs 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, the Euro and the Swiss franc relative to the U.S. dollar would affect the value of these cash balances at September 30, 2022 by approximately $1,230. 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 $92.
Largo Inc. Expressed in thousands / 000's of U.S. dollars and shares (except per share information) Notes to the Unaudited Condensed Interim Consolidated Financial Statements |
Price risk
The Company does not have any financial instruments with significant exposure to price risk.
18) Revenues
Three months ended | Nine months ended | |||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||
2022 | 2021 | 2022 | 2021 | |||||||||
Vanadium sales from contracts with customers | $ | 54,258 | $ | 53,861 | $ | 181,750 | $ | 147,954 | ||||
Total | $ | 54,258 | $ | 53,861 | $ | 181,750 | $ | 147,954 | ||||
Three months ended | Nine months ended | |||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||
2022 | 2021 | 2022 | 2021 | |||||||||
V2O5 revenues | ||||||||||||
Produced products | $ | 30,831 | $ | 28,627 | $ | 98,621 | $ | 76,381 | ||||
Purchased products | 1,655 | - | 3,184 | 455 | ||||||||
32,486 | 28,627 | 101,805 | 76,836 | |||||||||
V2O3 revenues | ||||||||||||
Produced products | $ | 3,798 | $ | - | $ | 3,798 | $ | - | ||||
Purchased products | 482 | - | 482 | - | ||||||||
4,280 | - | 4,280 | - | |||||||||
FeV revenues | ||||||||||||
Produced products | $ | 12,756 | $ | 22,621 | $ | 54,667 | $ | 63,908 | ||||
Purchased products | 4,736 | 2,613 | 20,998 | 7,210 | ||||||||
17,492 | 25,234 | 75,665 | 71,118 | |||||||||
Total | $ | 54,258 | $ | 53,861 | $ | 181,750 | $ | 147,954 |
19) Expenses
Three months ended | Nine months ended | |||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||
2022 | 2021 | 2022 | 2021 | |||||||||
Finance costs: | ||||||||||||
Interest expense | $ | 221 | $ | 297 | $ | 575 | $ | 636 | ||||
Interest on lease liabilities | 16 | 20 | 69 | 40 | ||||||||
Accretion | 59 | 38 | 143 | 107 | ||||||||
Loss allowance for trade receivables | - | (11 | ) | - | (16 | ) | ||||||
$ | 296 | $ | 344 | $ | 787 | $ | 767 |
Largo Inc. Expressed in thousands / 000's of U.S. dollars and shares (except per share information) Notes to the Unaudited Condensed Interim Consolidated Financial Statements |
Three months ended | Nine months ended | |||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||
2022 | 2021 | 2022 | 2021 | |||||||||
Operating costs: | ||||||||||||
Direct mine and production costs | $ | 24,655 | $ | 18,613 | $ | 66,120 | $ | 53,756 | ||||
Conversion costs | 1,655 | 2,037 | 5,839 | 6,660 | ||||||||
Product acquisition costs | 7,248 | 2,479 | 20,651 | 8,656 | ||||||||
Royalties | 2,497 | 2,707 | 8,265 | 6,588 | ||||||||
Distribution costs | 2,581 | 1,331 | 6,887 | 3,839 | ||||||||
Inventory write-down (note 5) | 1,655 | - | 1,942 | 2 | ||||||||
Depreciation and amortization | 5,111 | 4,825 | 14,923 | 15,713 | ||||||||
Iron ore costs | 200 | 134 | 637 | 50 | ||||||||
$ | 45,602 | $ | 32,126 | $ | 125,264 | $ | 95,264 |
20) Subsequent events
Subsequent to September 30, 2022, the Company secured an additional debt facility of $20,000 with a bank in Brazil. The facility is for three years, with equal principal repayments due after 18, 24, 30 and 36 months. In addition to a fee of 0.7%, accrued interest at a rate of 8.33% p.a. is to be paid every six months.