Largo secures US$150 million for vanadium project

Vancouver – Largo Resources (LGO-V) has conditionally secured more than half the needed funds to develop its 76%-owned Maracás vanadium project in Brazil’s Bahia state.

The company has arranged a non-binding term sheet for US$150 million in debt financing from Banco Itau, a Brazilian investment bank.

Largo still needs to raise an additional US$100 million to meet the US$215 million in capital costs and US$35 million in working capital needed to develop the Maracás project. Mark Brennan, president of Largo, however, said over the phone the funding situation is looking quite healthy.

It is an encouraging change for the company after being hit hard by the recession. Largo released a feasibility study with strong financials for its Maracás project in August 2008 but was unable to secure major funding until now.

The financing news comes shortly after Largo managed to increased its stake in Companhia de Maracas, which controls 95% of the Maracás project, by 33.5% to 80% after a payment of US$5 million plus interest to Odebrecht and Vale (VALE-N). Largo initially had a deadline to purchase the stake by late 2008, but was forced to extend the deal. The company has also extended the option to purchase another 10% of the company from Odebrecht and Vale to June 30.

Brennan stated in a press release in January that “we are very appreciative to Odebrecht and Vale for their support and understanding over the past year. It has been an extremely volatile period but we are now very optimistic about the road ahead.”

Largo bills Maracás as the highest-grade vanadium deposit in the world. The project has a total resource estimate of 22.5 million indicated tonnes grading 1.26% vanadium.

Brennan described Maracás as “a very very rich project and a very very lucrative project.”

The feasibility study established a proven and probable reserve of 13.1 million tonnes grading 1.34% V₂O₅ and a higher average of 1.94% V₂O₅ during the first eight years of production.

Largo has engineered the mine as an open pit operation for the first 13 years, followed by 10 years of processing stockpiled lower-grade material. The company expects mill throughput to be just under 1,600 tonnes per day, producing 4,500 tonnes of vanadium per year for the first eight years.

The study estimated a payback period of just under two years, with after tax cash flows of $1.33 billion. Internal rate of return was set at 43.9% and the pre-tax net present value at $488.9 million, using a 10% discount rate and an assumed long-term price of $8 per lb. V₂O₅.

The company has an off-take agreement with Glencore to purchase all material produced from the mill for the first six years, with an option to extend it for another six.

The property spans 2 sq. km and is located 50 km southwest of Maracás, the nearest town.

On the ground, the company is currently working on securing an installation license. Brennan said he expects the company to submit a complete application by July, with the license finalized by November.

Once funding is secured the company estimates it will take 24 months to begin production.

At the company’s Campo Alegre de Lourdes project, another vanadium project in Bahia state, Largo is continuing with line cutting, a mag survey and other geological work. Brennan expects a resource estimate for the project in the next three or four months.

Largo’s share price kept steady on the news to close at 25¢. The company has a 52-week share price range between 7.5¢ and 34¢ and 220 million shares outstanding.