Largo Resources Ltd (OTCMKTS:LGORF) is trading at a four year high. 2018 has turned out to be a pivotal and impressive year for the large-scale vanadium producer. A 200% rally since the start of the year attest the stock’s solid performance in the mining sector. While the stock has pulled back a bit from four-year highs, all indication is that the upward momentum is still in play.
Largo Resources Price Analysis
Pullbacks for the better part of the year have acted as a minor correction from where the stock has continued to climb higher. The stock has since pulled back to the $2.70 level after recording a new 52-week high of $3.28. The pullback in our view is a minor correction given the underlying solid fundamentals that support further movements on the upside.
Largo Resources faces immediate support is at the $2 a share level, on further pullbacks. A breach of the critical support level could see the stock plunging to the $ 1.20 level, seen as the next substantial support level. On the upside, a breach of the $3 a share level should open the door for the stock to make a run for the $3.48 mark.
Price action points to further movements on the upside as investor’s sentiments in the stock continue to build. The company is fresh from announcing record Q3 production results. The announcement of full repayment of existing long-term Brazilian debt has also gone well with investors.
About Largo Resources
Largo Resources is a natural resources development and exploration company. The company explores and develops mining properties in Brazil and Canada. It is one of the only three large-scale Vanadium producers in the world. In addition, the company also explores and mines Iron, Tungsten, Molybdenum Palladium and Platinum.
Record Production Results
The announcement of record production results in successive quarters is one of the reasons why Largo Resources has exploded in the market. The stock has emerged an exciting pick for investors looking to gain exposure to the company’s profitable vanadium mining operations.
For starters, the company is fresh from announcing record quarterly production of Vanadium Pentoxide at its Maracas Menchen Mine. Production in Q3 was up by 4% compared to Q2, allowing the company to record 2,563 tons of V205. Q3 marked the third consecutive quarter of strong production.
“With 7,235 tons of V2O5 produced so far this year, the Company is well positioned to achieve the upper end of its increased and revised 2018 guidance range of 9,150 to 10,150 tons of V2O5 produced for the full year,” said Mr. Mark Smith, Largo Resources Chief Executive Officer.
Record production results came just weeks after Largo resources reported record second quarter cash flows. The company generated a net income of $90.7 million in Q2 as revenues surged 189% to $103.3 million. Cash provided before non-cash working capital items stood at $77.7 million compared to $66.7 million as of last year.
Growing Cash flows
Record production results, as well as cash flows, are not the only catalysts pushing the stock up the charts. The announcement that the mining company has repaid all its existing long-term Brazilian debt has also gone a long way in strengthening investor’s confidence and sentiments in the stock.
The Brazilian debt was the only remaining debt obligation after the company cleared other facilities in August.
“We are very pleased to have been able to repay this debt while also taking advantage of the beneficial exchange rate between the Brazilian and US currencies. […] we will continue to look for ways to improve our capital structure and create value for our shareholders,” said Mr. Smith.
In September, Largo Resources exercised early redemption right and consequently repaid $15 million of its 9.25% Senior Secured Notes due in 2021. The early redemption once again underlined the company’s commitment to prioritizing debt repayments as part of an effort to improve capital structure and reduce interest costs.
What Next For Largo Resources
Largo Resources is in the best shape after underperforming for over four years. Vanadium mining operations are starting to pay up depicted by the record production levels as well as growing cash balance.
Getting rid of toxic debts is another development that underscores the company’s commitment to maintaining a solid capital structure. Investor confidence in the stock should continue growing as the company continues to achieve greater levels of efficiency in Vanadium mining.
After a recent pullback, now may be the best time to enter a long position in the stock given the underlying solid fundamentals supporting further movements upwards.
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Disclosure: We have no position in LGORF and have not been compensated for this article.