Why Analysts Believe This Vanadium Co. Is A Buy

An important western vanadium producer is on analysts' radar as it looks to increase production of the battery metal and start up its new ilmenite plant.

Toronto-based Largo Inc. LGO is an important producer of vanadium in the West, a battery metal in demand in the new green energy economy.

Its Q1 vanadium production results this year were in the upper range of the company's quarterly guidance, its new ilmenite plant remains on target to be completed this quarter with a production ramp-up in Q3 and Q4, and demand for vanadium is expected to grow in the coming years.

As a result, analyst Gordon Lawson of Paradigm Capital has rated the stock a Buy, analyst Michael Heim of Noble Capital Markets has rated it Outperform, and Rule Investment Media LLC Chief Executive Officer Rick Rule recently named it one of his top picks.

Analyst Gordon Lawson of Paradigm Capital has rated the stock a Buy, analyst Michael Heim of Noble Capital Markets has rated it Outperform, and Rule Investment Media LLC CEO Rick Rule recently named it one of his top picks.

"The combination of environmental regulatory changes in China and the development of Vanadium Redox Batteries has caused a renewed interest in vanadium," Lawson wrote on May 11, giving the stock a CA$15 target.

"With 99.94% ownership of the Maracás Menchen mine, a low-cost vanadium operation in Brazil, Largo Resources is well positioned to capitalize on a new paradigm in vanadium pricing."

Vanadium is used in long-duration grid-scale batteries for intermittent power issues and to support other energy sources like solar, wind, and hydro.

Analyst Looks Long on Largo

Largo produced 2,111 tons of vanadium pentoxide (V2O5) and sold 2,849 tons of V2O5 in Q1 of 2023. Those results are in the upper range of the company's quarterly production guidance, which was reduced due to drilling delays caused by wet weather.

"The guidance reduction is discouraging, but the overall investment premise is intact, perhaps just delayed a few quarters," Heim of Noble Capital Markets wrote on May 12. In addition to the Outperform rating, he set a price target of CA$10 per share.

"The Largo investment story is less about near-term results and more about long-term developments," Heim wrote.

"The Largo investment story is less about near-term results and more about long-term developments," Heim wrote. "We believe vanadium production will return to peak levels, and the ilmenite project investment will provide attractive cash-on-cash returns. Meanwhile, industry fundamentals continue to improve."

In May 10 research notes, Morgan Stanley Research analyst Carlos De Alba rated the stock Equal-Weight with a target of CA$8, and analysts Bryce Adams and Banu Nadarajah of CIBC Equity Research rated it Neutral with a CA$10 target.

"We view successful execution of the ilmenite project as well as the advancement of the clean energy business through further customer updates to be potential catalysts in the year ahead," Adams and Nadarajah wrote.

The Catalysts: Increasing Production, New Plant

Drilling has resumed, and "management should have a better idea of what production and sales could look like for the rest of 2024 soon," Heim wrote.

The construction of its ilmenite concentration plant has gone as planned and is scheduled to start producing this year. Ilmenite is the primary ore of titanium and is also used to manufacture titanium dioxide, a pigment, whiting, and polishing abrasive.

Largo expects to finish commissioning the plant by Q2 of 2023 and plans to ramp up production in Q3 of 2023.

We view successful execution of the ilmenite project as well as the advancement of the clean energy business through further customer updates to be potential catalysts in the year ahead," Adams and Nadarajah wrote.

Largo Clean Energy has also persisted with the installation of its vanadium redox flow battery (VFRB) for Enel Green Power Espana. The company also completed the membership registration for the Long Duration Energy Storage Council last April.

Interim Chief Executive Officer Daniel Tellechea said he is focused on reducing mining costs and returning Largo's production to peak levels of about 12,000 tonnes annually, or 34 tonnes per day, Heim wrote.

"Improving production may be as simple as getting past the weather and drilling issues of the last six months," Heim noted. "However, that may depend upon the results of current infill drilling. Lowering unit costs will come with increased production and sales."

Why Vanadium?

The global market for vanadium, estimated at US$42.5 billion in 2022, is projected to reach US$81.8 billion by 2023, a compound annual growth rate (CAGR) of 8.5%, according to a report by Global Industry Analysts.

The U.S. market alone was estimated at US$11.6 billion in 2022. China's market in the battery metal is expected to reach US$18.6 billion by 2030.

"The potential for the Largo Physical Vanadium vehicle, an innovative way to store vanadium, which is a market that I think goes higher, makes this whole sort of complex, Largo and the vanadium sector, very appealing to me," Rule told Bloomberg.

Rule Investment Media LLC Chief Executive Officer Rick Rule said he liked Largo and the Largo Physical Vanadium Corp. VANAF stock on the Toronto Stock Exchange in particular because it offered investors direct exposure to physical vanadium.

"The potential for the Largo Physical Vanadium vehicle, an innovative way to store vanadium, which is a market that I think goes higher, makes this whole sort of complex, Largo and the vanadium sector, very appealing to me," Rule told Bloomberg.

Largo Physical Vanadium could energize the market, Shovel Stocks has said.

It noted similar action in the market when the Sprott Physical Uranium Trust (SPUT) was created.

"The constant buying power of the Sprott Physical Uranium Trust (SPUT) in the uranium spot market drove the uranium spot price up from the low US$30s to above US$50," Shovel Stocks noted.

Ownership and Share Structure

Institutions hold 16,137,220 shares (25.21%) of Largo, 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 most 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 had US$61.6 million in the bank and a debt of US$65 million as of March 31, 2023.

Largo's market cap is CA$368.67 million. It has about 64 million shares outstanding, 35.68 million free-floating. It trades in a 52-week range of CA$12.08 and CA$5.15.

Important Disclosures:

1. Steve Sobek wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee.
2. The following companies mentioned in this article are billboard sponsors of Streetwise Reports: Largo Inc.
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