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Lgo corporate presentation pdac 2013 - final

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  • 1. An Emerging Market Leaderfor VANADIUM and TUNGSTEN Production CORPORATE PRESENTATION PDAC March 2013 www.largoresources.com
  • 2. Forward Looking StatementsThe information presented contains “forward-looking statements,” within the meaning of the United States Private Securities Litigation Reform Act of 1995, and“forward-looking information” under similar Canadian legislation, concerning the business, operations and financial performance and condition of the Company.Forward-looking statements and forward-looking information include, but are not limited to, statements with respect to the estimation of mineral reserves and mineralresources; the realization of mineral reserve estimates; the timing and amount of estimated future production; costs of production; metal prices and demand formaterials; capital expenditures; success of exploration and development activities; permitting time lines and permitting, mining or processing issues; governmentregulation of mining operations; environmental risks; and title disputes or claims. Generally, forward-looking statements and forward-looking information can be identifiedby the use of forward-looking terminology such as “plans,” “expects” or “does not expect,” “is expected,” “budget,” “scheduled,” “estimates,” “forecasts,” “intends,”“anticipates” or “does not anticipate,” or “believes,”, “projects” or variations of such words and phrases or state that certain actions, events or results “may,” “could,”“would,” “might” or “will be taken,” “occur” or “be achieved.” Forward-looking statements and forward-looking information are based on the opinions and estimates ofmanagement as of the date such statements are made, and they are subject to known and unknown risks, uncertainties and other factors that may cause the actualresults, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking statements orforward-looking information, including, but not limited to, unexpected events during operations; variations in ore grade; risks inherent in the mining industry; delay orfailure to receive board approvals; timing and availability of external financing on acceptable terms; risks relating to international operations; actual results of explorationactivities; conclusions of economic valuations; changes in project parameters as plans continue to be refined; and fluctuating metal prices and currency exchangerates. Although management of the Company has attempted to identify important factors that could cause actual results to differ materially from those contained inforward-looking statements or forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can beno assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements.Accordingly, readers should not place undue reliance on forward-looking statements and forward-looking information. The Company does not undertake to update anyforward-looking statements or forward-looking information that are incorporated by reference herein, except in accordance with applicable securities laws.Investors are advised that National Instrument 43-101 of the Canadian Securities Administrators requires that each category of mineral reserves and mineral resourcesbe reported separately. Mineral resources that are not mineral reserves do not have demonstrated economic viability.Cautionary Note to U.S. Investors Concerning Estimates of Measured, Indicated or Inferred ResourcesThe information presented uses the terms “measured,” “indicated” and “inferred” mineral resources. United States investors are advised that while such terms arerecognized and required by Canadian regulations, the United States Securities and Exchange Commission does not recognize these terms. “Inferred mineralresources” have a great amount of uncertainty as to their existence, and as to their economic and legal feasibility. It cannot be assumed that all or any part of aninferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibilityor other economic studies. United States investors are cautioned not to assume that all or any part of measured or indicated mineral resources will ever be convertedinto mineral reserves. United States investors are also cautioned not to assume that all or any part of an inferred mineral resource exists, or is economically or legallymineable. 2
  • 3. Investment Highlights Exposure to Growing and Supply Constrained Commodity Vanadium Prices Increasing 4-5% demand growth in steel China: demand to increase by +50% by 2015 • 25,000 tonnes to 45,000 tonnes Highest Grade, Highest Quality, Lowest Cost Project IRR: 26.3 & NPV:$554 million Funded, permitted and in construction Commissioning targeted for Q4, 2013 Substantial cashflow generation in 2014 Glencore Off-take Partnership: 100% Take-or-Pay Contract 3
  • 4. Corporate Structure Stock symbol: LGO – TSX-V Share price (Feb 26, 2013): $0.235 Shares issued (Basic): 870 million Market Cap C$204 million 52-week High/Low: $0.30 / $0.17 Management & Institutions: 75% Currais Novos Project Warrants & Options (Basic): 250 million Shareholder site visit – August 2012Shareholders & Project Partners Institutional Shareholders Project Partners Arias Resource Capital-19.9% Glencore International 100% 6 yr take-or-pay off-take agreement for Maracas Mackenzie Investments-15.9% vanadium project Eton Park Capital Management-12.5% Major Tungsten End User 100% Off-take agreement for Currais Novos tungsten project Ashmore Investment Management-12.5% 4
  • 5. Construction and Operating Experience Mark Brennan, President & CEO Founding member of Desert Sun Mining with over 20 years financing experience in North America and Europe. Founder and Principal of Linear Capital, Brasoil Corporation, Castle Resources, James Bay Resources, Morumbi Oil & Gas and former President, CEO and Chairman of Admiral Bay Resources. Tim Mann, P.Eng., Chief Operating Officer Mining Engineer with extensive international operations and management experience in mine engineering, development and operations with SNC Lavalin, Placer Dome and Goldcorp. Andy Campbell, M.Sc., P.Geo., Vice President Exploration Over 33 years experience in mining and exploration, including LAC Minerals and Noranda. Kurt Menchen, General Manager, Brazil Former Jacobina Mine Manager, Brazil. Mining Engineer with over 30 years experience including Anglo Gold and Desert Sun Mining. Les Ford, Technical Director of Brazilian Operations With over 40 years of experience in constructing, developing and producing vanadium projects, Mr. Ford is arguably one of the world’s foremost experts in vanadium. Previously Assistant General Manager of Highveld Steel and a member of the Highveld Executive Committee, and Managing Director of Rand Mines Vansa. Douglas Herbst, Maracas Project Manager Mr. Herbst has extensive management experience in the design and construction of heavy and medium size industrial projects, ranging from oil and gas, steel mills, chemical and food plants as well as minerals refining and processing plants Donald Clark, Construction Advisor and Specialits Mr. Clark formerly headed up Yamanas construction management team in Brazil. Mr. Clark has over 30 years of experience managing the design, construction and operations of major mineral processing plants in Brazil and abroad and will provide guidance with respect to the construction management process for Maracás. John Laurie, C. A., Chief Financial Officer Over 20 years of accounting and financial management experience. 5
  • 6. Strong, Independent BoardMark Brennan, President/CEO and DirectorFounding member of Desert Sun Mining with over 20 years financing experience in North America and Europe. Founder and Principal ofLinear Capital, Brasoil Corporation, James Bay Resources, and Morumbi Oil & Gas and former President, CEO and Chairman ofAdmiral Bay Resources.Dirk Donath, DirectorSenior Managing Director and Partner at Eton Park Capital Management, responsible for Eton Park’s private equity and directinvestment activities in emerging markets. Eton Park is a global, multi-disciplinary investment fund with a capital base of overUS$14 billion.Dan Ioschpe, DirectorMr. Ioschpe is currently Chief Executive Officer of Lopche-Maxion, an international company operating in the automotive and railroadsectors..Alberto Arias, DirectorFounder and President of Arias Resource Capital Management. He worked for Goldman Sachs & Co and was ranked for fiveconsecutive years as the #1 Equity Research Analyst for the metals and mining industry in Latin America. Prior to Goldman Sachs, heworked at UBS as Executive Director and Analyst covering the Latin American mining sector.David Brace, DirectorMr. Brace is currently Chief Executive Officer and a director of Karmin Exploration and a director of Viking Gold Exploration Inc. Mr.Brace previously served as President of Lambton Capital Inc., a private investment firm focused on evaluating mining investments. Hehas also served as the Chief Executive Officer and as a director of Globe Star Mining as well as Executive Vice-President of BusinessDevelopment with Aur Resources Inc. until August, 2007.Wayne Egan, DirectorMr. Egan is a partner at the law firm of WeirFoulds LLP and acts for several public companies on the TSX and TSX Venture Exchange.Dr. Alan Alper, DirectorDr. Alper is an accomplished senior executive, with 30 years of experience at Osram Sylvania, Inc., formerly GTE Sylvania. 6
  • 7. What is Vanadium? Vanadium [V23] 0.1%V 1 Tonne of Steel = 2X Strength Is primarily used as a steel alloy. It makes steel…. Low input cost Stronger • Highest strength to weight ratio of all metals Higher quality product Lighter • Increases strength so less steel is needed Tougher • Resistant to: seismic events, corosion and abrasion Less steel required Source: Roskill, 2010 7 Source: Vanitec
  • 8. Steel’s Greatest Alloy Most widely used alloying element to strengthen steel for buildings, bridges and tunnels 22% in High Strength Low Alloy Steels, 34% in Carbon Steels, 20% Full Alloy, 9% Special Treatment Steels High Strength Low Alloy steels accounted for 34% of US steel consumption Demand for high strength steels growing at 6.3% CAGR over the next ten years Source: Roskill, 2010, Source: Vanitec, Source: US Geological Survey 2012, Source: CPM Group, 2010 8
  • 9. Vanadium is Everywhere: • Rebar for construction • Buildings, bridges, tunnels • Automotive parts • Various tools and dies • High strength steel structures • Construction machinery and equipment • Cast iron used for rolls in steel mills • Chemical plants, oil refineries, offshore-platforms • Pipelines • Aviation and aerospace • Power lines and power pylons Source: Vanitec 9
  • 10. High Strength Steel in Automobiles Volkswagen Lowering Costs and Increasing Efficiency In 2013 VW announced plans to use new high-strength steel to make its cars lighter and also to comply with the strict emissions regulations. VW chose to replace aluminum with light weight ones to make to improve fuel efficiency. “VW…is giving up aluminum for the high tensile steel, which is up to six times stronger than conventional steel. The new material not only made the new Golf with about 100kg lighter, but also helped the company reduce costs.” (Reuters) Ford Reducing Weight In 2013 Ford announced that the F-150 pickup will soon be 250 to 750 pounds lighter. A recent study showed that the material is not only cheaper to use but also safer, the vehicles tested showing an outstanding crash performance. Ram Increasing Strength Ram’s 2013 3500 pickup 7,000 pounds additional towing capacity than previous version, all thanks to high-strength steel. Source: www.steel.org 10
  • 11. Unstable Supply & Growing Demand Supply Demand 74% CAGR 5%Production Growth Unstable Jurisdictions China’s Increasing Dominate Supply Demand +50% Increase by 2015 World Reserves Consumption Source: Roskill, 2010 Source: Metal Pages Jan 14, 2013 http://bit.ly/VK8Qkr Source: Roskill, 2010 11 Source: Vanitec/US Geological Survey, 2012 Source: Metal Pages Feb 15, 2012 http://bit.ly/VaNEzx
  • 12. China Increasing Quality of Rebar %V in Rebar 2010 Minimum 0.08% 0.07% 0.05% 0.023% 0.05% 2013+ Source: Les Ford Vanadium and Steel presentation, PDAC 2010 12
  • 13. Historical Vanadium Pricing $6.85 $20 February 11, 2013 $15 Low Price $10 High Price $5 $0 Major supply $6.37 disruptions in South 3 yr average Africa & China * Source: Metal Bulletin 13
  • 14. Maracás Vanadium Project 14
  • 15. Maracas Project Snapshot Mineral Resources Production Profile* Mineral 13.1 million tonnes Production Operating Reserve: @ 1.34% V2O5 Year Tonnes V2O5 Equiv. Cash Flow* 2014 5,511 $30 million Mineral 24.6 million tonnes Resource: @ 1.11% V2O5 (M&I) 2015 9,689 $80 million 30.4 million tonnes 2016 12,952 $108 million @ 0.83% V2O5 13,757 2017 $120 million (Inferred) 2018 14,599 $125 million2011 2012 2013 2014 2015 Equity Debt Construction Q4 Production Expansion Funded Funded *Cash flow represents average annual net after tax operating cashflow 15
  • 16. Maracas Project Economics Producing 11,400 *** Tonnes V2O5 per annum IRR: XXX% * NPV: $XXX * Aug. Cash 2.00 USD/BR exchange rate** flow: X XXX $6.37 Price (lb V2O5 equiv) $2.10 Opex (per lb V2O5 equiv) **** $230 million(Capex) FUNDED $50 million (Expansion Capex) FUNDED by CASH FLOW Years 2-3 *IRR and NPV calculated @ 8% discount rate after all taxes, royalties and sustaining capex **Cash flow represents average annual net after tax cashflow – Years 1-15 *** Production levels average Years 1-29 ****Includes iron ore byproduct credit 16
  • 17. Concessions and Mineralization Gulcari “A” Deposit Detail Maracás concessions and strike length 17
  • 18. Maracas Grade and Quality Highest Grade/Quality Vanadium Deposit in the WorldVanadium is contained in magnetite with a higher iron content than others =Better recoveries, requires less power and less chemicals =Concentrate with much higher V2O5, higherFe, and lower SiO2 (contaminant) than any other deposit = Ore V2O5% Concentrate SiO2% Concentrate V2O5% LOWEST COST PRODUCTION *Average grade comparisons compiled by Les Ford, presentation March 8, 2011 18
  • 19. Maracas Mining Process*Unit Mining Total Revenue Cost OPEXTonne of ore $14.29 $61.50 $129.97Per lb V2O5 /equiv.** $0.82 $2.10 $6.09 Simple, Cost-Effective Open Pit Mining Process • Deposit outcrops at surface • Less than 1 meter pre-stripping • High grade material from surface continues to depth *See press release dated Jan 18, 2013 **Includes all royalties less credit Iron Ore byproduct 19
  • 20. Maracas Deposit Outcrop 150 meters Magnetite 25 meters of ore at surface Dips at 65 ◦ Gabbro (waste) 20
  • 21. Maracas Process Flow Proven Low-Cost Process with Efficient Ramp Up • Uses “best-practices” from current low-cost producers • No new process or technology • Low input costs due to ore quality • Efficient ramp-up schedule • 75% production reached in 6 months 21
  • 22. Maracas Projected Cash flow*$140$120$100 Significant Cash Flow $80 After-tax Operating Cash Flow $60 Free Cash Flow $40 $20 $0 2014 2015 2016 2017 2018 Implementing Expansion & FeV plant *See press release dated Jan 18, 2013 22
  • 23. Technical Report Sensitivity Analysis* Vanadium Price Project Sensitivity Historical Averages (per lb V2O5) Project Net Present Value (NPV) $700,100 NPV (000 USD) $600,100 $638 $500,100 $554 $469 $400,100 $300,100 $200,100 $100,100 $100 $5.49 90% 95% $6.37 105% 110% $7.44 85% 100% 115% Sale Price (Vanadium Pentoxide) • Strong economics at historic Project Internal Rate of Return 35% lows – low cost producer 30% 29.2% 25% 26.3% • Pricing projected to rise on 20% 23.4% IRR (%) 15% increasing demand 10% 5% • Main sources of supply prone to 0% $5.49 90% 95% $6.37 105% 110% $7.44 85% 100% 115% instability Sale Price (Vanadium Pentoxide) Source: Metal Bulletin Historical Pricing 23 * See press release dated January 18, 2013
  • 24. Maracas Construction Schedule 2012 2013 NOV NOV MAY MAY MAR MAR AUG AUG OCT OCT DEC JAN APR JUN APR JUN DEC SEP SEP FEB JUL JULEngineering 82.0 %Procurement Services 97.7 %Equipment Fabrication 73.6 %Civil Works 36.7 %Crushing System Erection Commissioning Target Range 0.0 %Milling System Erection 3.5 %Kiln System Erection 0.0 %Sulphate Salt Recovery 0.0 %System ErectionDeammoniator/ Furnace 7.2 %ErectionUtilities System Erection 2.4 %Eletrical Line Contract 49.0 %Water Pipeline Erection 99.0 % 24
  • 25. Site Development Processing Plant Concrete Plant Admin Facilities Main Access Road Crushing and Milling Gulcari “A” Deposit and Open Pit 25
  • 26. Site Development Foundations for primary, secondary and tertiary crushers 26
  • 27. Site Development Civil works at concentrate stockpile tunnel and kiln foundations as well as completed piperacks and tanks 27
  • 28. Site Development Crushing conveyor tunnel 28
  • 29. Site Development Arrival of parts for primary crusher 29
  • 30. Site Development Kiln foundation, piperacks and large water tank 30
  • 31. Site Development Prestriping work at Gulcari A 31
  • 32. Site Development 32
  • 33. Maracas Investment Summary: Project fully funded, permitted and in construction Highest grade deposit To be lowest cost producer in market Significant cash flow to be generated in 2014 Strong potential for upside on commodity price in near-term Commodity with growing demand and unstable supply 33
  • 34. What is Tungsten? Tungsten [W74] Tungsten is unique in its extreme qualities and difficult to replace Tungsten is…. • Only diamonds are harder Cemented Carbide Usage Very Hard • 100X harder than steel Very Heat • Highest melting point Resistant • Lowest expansion • Greater than lead or Very Dense uranium Source: Roskill, 2011 34 Source: Minor Metals Trade Association
  • 35. Tungsten Uses: • Heavy construction machinery • Drilling for mining, oil and gas • Pipelines • High temperature equipment and parts • Heavy artillery and missiles • Automotive • Electronics • Lightbulbs Source: Vanitec 35
  • 36. Supply Dominated by China Supply Supply Demand Tungsten Scored 4th 95,000 Tonnes Most at Risk out of 52 (2015) Elements 67,000 Tonnes (2011) Production Consumption 17% Growing at 7% per year Source: British Geological Survey’s Risk List, 2011 Source: Roskill, 2011/Europacific Canada, April 12, 2012 36 Source: US Gelological Survey
  • 37. Long Term Tungsten Pricing $500 $400 Low Price $300 High Price $200 $100 $0 * Source: Metal Bulletin 37
  • 38. Maracas Cash Flow Projections projection Maracas: Catalysts for Growth  Year 1 = Current production parameters  Year 2 = Sale of tailings material (pig-iron)  Years 4+ = 50% increase in production capacity •Projections assumes FeV pricing of $28.00 per Kg The information presented contains “forward-looking statements,” within the meaning of the United States Private Securities Litigation Reform Act of 1995, and “forward-looking information” under similar Canadian legislation, concerning the business, operations and financial performance and condition of the Company. Forward-looking statements and forward-looking information include, but are not limited to, statements with respect to the estimation of mineral reserves and mineral resources; the realization of mineral reserve estimates; the timing and amount of estimated future production; costs of production; metal prices and demand for materials; capital expenditures; success of exploration and development activities; permitting time lines and permitting, mining or processing issues; government regulation of mining operations; environmental risks; and title disputes or claims. Generally, forward-looking statements Forward-looking statements and forward-looking information are based on the opinions and estimates of management as of the date such statements are made, and they are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking statements or forward-looking information, including, but not limited to, unexpected events during operations; variations in ore grade; risks inherent in the mining industry; delay or failure to receive board approvals; timing and availability of external financing on acceptable terms; risks relating to international operations; actual results of exploration activities; conclusions of economic valuations; changes in project parameters as plans continue to be refined; and fluctuating metal prices and currency exchange rates. 38
  • 39. Identify and AcquireAdditional Resources Historical production district Significant production from 1940s to 1970s (approx 8% of global supply) Numerous potential acquisitions in immediate vicinity – both underground and tailings Provides significant expansion potential Preliminary exploration underway with goal of defining additional resources 39
  • 40. Implementation Summary Highlights Production Commenced December 2011 90 tonnes of concentrate shipped Initially commissioned without mill due to importation delay at port Mill commissioned in February Plant optimization proceeded to adjust milling circuit 3 additional screens were added in order to increase yields Screens commissioned in Q3 Modifications to plant are ongoing Production temporarily suspended due to severe regional drought Presently continuing modifications and ramping Currais Novos Site Visit – August 2012 up 40
  • 41. Currais Novos Cash FlowProjections Currais Novos: Catalysts for Growth projection  Year 2 = Current production parameters  Year 4+ = following 3 year exploration ramp-up on recently acquired additional underground properties* Projections assumes exploration success on aditional properties ramp up The information presented contains “forward-looking statements,” within the meaning of the United States Private Securities Litigation Reform Act of 1995, and “forward-looking information” under similar Canadian legislation, concerning the business, operations and financial performance and condition of the Company. Forward-looking statements and forward-looking information include, but are not limited to, statements with respect to the estimation of mineral reserves and mineral resources; the realization of mineral reserve estimates; the timing and amount of estimated future production; costs of production; metal prices and demand for materials; capital expenditures; success of exploration and development activities; permitting time lines and permitting, mining or processing issues; government regulation of mining operations; environmental risks; and title disputes or claims. Generally, forward-looking statements Forward-looking statements and forward-looking information are based on the opinions and estimates of management as of the date such statements are made, and they are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking statements or forward-looking information, including, but not limited to, unexpected events during operations; variations in ore grade; risks inherent in the mining industry; delay or failure to receive board approvals; timing and availability of external financing on acceptable terms; risks relating to international operations; actual results of exploration activities; conclusions of economic valuations; changes in project parameters as plans continue to be refined; and fluctuating metal prices and currency exchange rates. 41
  • 42. Northern Dancer Project Northern Dancer Resource Estimate 223.4 MT grading 0.102% WO3 and 0.029% Mo (M&I) Higher-grade tungsten and molybdenum zone: 60.3 MT of 0.14% WO3 and 0.045% Mo (M&I) 201.2 MT grading 0.09% WO3 and 0.024% Mo (I) Development Milestones PEA complete Environmental permitting under way Discussions with off-take partners and JV partner 42
  • 43. Northern Dancer: PEA HighlightsLow cash cost producer: US$116 per MTU49 year mine lifePre-production capital costs: $645 million Strategic asset for long termCumulative cash flow US$4.8 billion supply of tungstenAverage annual production of 833,000 MTU tungsten(18.3 million pounds) and 5,959,000 poundsmolybdenum over initial 23 yearsCurrent trading price of US$300 MTU Tungsten Moly NPV @ 8% IRR (%) Attractive economics at(US$ per MTU) (US$ per lb) (US$ millions) current tungsten prices$275 $17.50 20.0 918$300 $17.50 22.2 1,110$325 $17.50 24.4 1,302$350 $17.50 26.5 1,494$365 $17.50 27.8 1,769 * The PEA is preliminary in nature, and includes inferred resources that are too speculative geologically to have economic considerations applied to them. 43 There is no certainty that the PEA will be realized.
  • 44. Campo Alegre Project Non NI 43-101 Resource: 133 Million Tonnes Grading 50% Fe, 21% TiO2, 0.75% V2O5* 100% owned iron, titanium, and vanadium deposit - seven concessions covering 9,274.66 hectares Purchased in 2009 for USD $250,000.00 from Bahia State Mining Development Agency (CBPM) Preliminary metallurgical testwork completed in 2011 suggested potential for titanium dioxide (TiO2) project Further metallurgical testing underway in 2012 * Historical resource provided by CBPM (Bahia State Mining Development Agency) 44
  • 45. Investment Thesis: Maracas project fully funded, permitted and in construction • Highest grade deposit • To be lowest cost producer in market • Significant cashflow generated at prices below historical averages • Strong potential for upside on commodity price in near-term Exposure to commodities with growing demand and unstable supply Management team with construction and operational experience Projects located in politically stable and mining friendly jurisdictions 45
  • 46. Darcie Ladd Business Development Manager dladd@largoresources.com 416-861-9406 Mark Brennan President and CEO mbrennan@largoresources.com 416-861-9797Largo Resources www.LARGORESOURCES.com@LargoResources1 55 University Ave. Suite 1101 Toronto, ON – M5J 2H7Largo Resources 46