Largo Inc (LGO) 2020 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Largo Resources fourth quarter and year-end results conference call. (Operator Instructions) This call is being recorded on Thursday, March 18, 2021.

I would now like to turn the conference over to Mr. Alex Guthrie. Please go ahead.

Thank you, operator, and welcome, everyone, to Largo's Annual 2020 Financial Results Conference Call. Today's call is being recorded, and a replay will be available starting tomorrow within the Investors section of our website at largoresources.com. Our annual 2020 results press release, latest MD&A and annual 2020 financial statements are also all available on the company's website and on SEDAR.

Some of the information you will hear during today's discussion will consist of forward-looking statements, including, without limitation, those regarding future business outlook. In addition, non-IFRS financial measures, such as cash operating costs and cash operating costs excluding royalties, total cash costs and revenues per pound sold, will also be discussed during this conference call. Actual results discussed during today's call could differ materially from those anticipated, and risk factors that could affect results are detailed in the company's Annual Information Form and other public filings, which are available on SEDAR and on the company's website. Further information regarding Largo's use of non-IFRS measures is also available in our annual 2020 results press release and in the company's latest MD&A, which are of -- which are available on our website and on SEDAR.

Market and industry data contained and incorporated by reference during this call concerning economic and industry trends is based upon good faith estimates of our management or has been derived from information provided by industry sources. Largo believes that such market and industry data is accurate and the sources from which it has been obtained are reliable. However, we cannot guarantee the accuracy of such information, and we have not independently verified the assumptions upon which projections and future trends are based. Lastly, all financial amounts presented today will be in U.S. dollars, except as noted otherwise.

Speaking first will be Largo's President and Chief Executive Officer, Paulo Misk, who will provide highlights from the company's annual 2020 results, followed by Largo's CFO, Ernest Cleave, who will then provide additional detail on the company's Q4 and annual 2020 financial performance. Following Ernest, Largo's Director of Sales & Trading, Mr. Paul Vollant, will provide an update on Largo's sales and trading progress as well as the vanadium market. And concluding today's call will be Largo's VP of Engineering, Mr. Shazad Butt, who'll provide an update and overview of the company's VRFB, progress and market opportunities. Finally, we'll open the call to questions that have been provided through the company's Q&A portal.

I will now turn the call over to Paulo for opening remarks.

Thank you, Alex, and welcome, everyone, to our quarterly update conference call. 2020 was certainly a year of unprecedented challenges. But through this all I'm proud to say that we have remained focused on continuing to differentiate ourselves as the clear industry leader with the vanadium sector and have invested strategically in the renewable energy storage space, setting the stage for continued value creation for our shareholders.

I'm pleased to say that 2020 was another year of record-breaking results, and I want to congratulate the entire team who have made this possible under extraordinary circumstances. The health and safety of our workforce continues to remain a top priority, and our focus on preventive measures early on enabled the company to continue operations in a safe manner throughout 2020. Our utmost gratitude is extended to all front line workers who have helped keep us safe and healthy during the global COVID-19 pandemic. Additionally, we would like to once again thank our entire workforce who have helped with continued safe business operation during this uncertain time. Going forward, we will continue to do our part to help stop the spread of COVID and help ease the effects caused by the COVID-19.

2020 marked a transformative year for Largo as we successfully established and implemented our internal sales division while navigating various challenges present by the global COVID-19 pandemic. In 2020, the company surpassed its annual V2O5 sales guidance by 254 tonnes and outperformed its annual cash cost, excluding royalty, guidance by 5%. The company also achieved a new annual V2O5 production record of 11,825 tonnes in 2020, which represents a 12% increase over 2019. Additionally, we set a new quarterly sales record in Q4 with V2O5 production of 3,340 tonnes. I'm extremely proud of our entire team as these results continue to demonstrate the company's strong focus on operational excellence and the stringent cost management.

The company also achieved a new annual average global V2O5 recover record of 81.5% in 2020, which represents a 4% increase over 2019. In Q4 2020, global recoveries averaged 80.6%, which compares quite favorably to the 77.3% average in Q4 2019. We expect global recoveries to remain relatively stable throughout 2021, with the exception of Q1 when global recoveries will be slightly impacted as a result of the kiln and cooler's ramp up. We expect a global recovery of approximately 81% in 2021. Subsequently, the 2020 V2O5 production in January was 382 tonnes, and production in February was 769 tonnes. The decrease in production levels is due to the plant shutdown to implement the upgrades to the kiln and improvements in the cooler, as previously mentioned. As a result of the restrictions implemented at site due to the COVID-19 pandemic, these upgrades were postponed to and completed in January. Following the ramp up phase of this project, the company expects to reach its new nameplate capacity of 1,100 tonnes of V2O5 per month by Q2 2021.

At Largo, we pride ourselves on a proven history of community relations, stakeholder engagement and excellent social and environmental stewardship. In July 2020, the company released its 2019 sustainability report, highlighted by improved performance metrics and new reporting standards. Our sustainability reporting is now guided in part by the Sustainability Accounting Standards Board and closely follows Global Reporting Initiative's benchmarks. In 2020, Largo conducted initial assessment of climate-related risks and opportunities, which took into the consideration the potential impact of all the company's stakeholders. By better understanding these issues, we can better explore the implementation of necessary mitigation at the right time, explore new opportunities related to the enhancement of our overall ESG performance and disclosures. In addition to the climate change assessments, we conducted ESG GAAP analysis in November of 2020. This has led to several recommendations, and the company is now working on improvements to its overall ESG performance and disclosures. The company expects to release its improved 2020 ESG report in Q2 2021.

On the exploration front, the company completed approximately 25,000 meters of treating in 2020 at various targets, including Novo Amparo Norte, Gulçari A Norte, São José, Novo Amparo and the Campbell Pit. In Q2 2021, we expect to release an updated tech report, which will be aimed at upgrading mineral resources to mineral reserves, expanding our mineral reserves. And we will look to incorporate the V2O3 plant and the titanium pigment projects. This year, we expect to spend approximately $2 million on exploration, and our program will focus on Campbell Pit, detailing pit drilling for the new short-term block model on the test extension drilling.

On March 4, the company completed the consolidation of its issue and outstanding common shares at a ratio of 1 post-consolidation share for every 10 preconsolidation shares and begin trading on post-consolidated basis on March 8. Concurrently with this share consolidation, the company also announced that it has submitted an initial application to list its common shares on the NASDAQ stock market. We remain very excited about the prospect of listing in NASDAQ as we believe a U.S. listing will benefit our business and shareholders and we think to further execute on strategic advancing the company's growth projects.

Just this week, we were pleased to report that the company completed its first sales contract for sales of iron ore from Maracás Menchen Mine. Our first sales of iron ore was a key step in validating the commercial viability of this material and also highlights the added benefit of our newly established internal sales division, while capitalizing on the high iron ore price environment. The sales diversify the company source of revenue as up until now, 100% of our revenues has been derived from the sales of the vanadium products. As a refresher, material mined from our Maracás operation contains the vanadium, iron ore and titanium.

We are also pleased to announce this morning that the company has approved the construction of a new ilmenite concentration plan. Commercial production from this new plant is expected to early 2023, and its capacity will be approximately 150,000 tonnes of ilmenite concentrate per year. As discussed during previous announcement, Largo started ilmenite pilot plant in October 2019, which has subsequently proven successful with ilmenite product being produced shortly after. Based on these promising results, the Board has approved the construction of a full-scale plant. The advanced engineering and construction of this plant is expected to cost approximately USD 25.2 million, with the majority of these costs being incurred in 2022. We also plan to further evaluate our potential to produce titanium dioxide pigment as a possible follow-on product for our ilmenite concentrate.

We expect to provide the associated economics of this project in conjunction with our update second report, which is anticipated in Q2 2021. We are excited with the announcement of this approval as it is another step in increasing and diversify our revenues. Going forward, we will continue to explore the economic feasibility of extracting additional value from our mineral resource.

Lastly but what we, at Largo, view as one of the most exciting venture of the company has embarked on is the launch of our Largo Clean Energy division. The formation of Largo Clean Energy provides a vertically integrated vanadium redox flow battery solution for the fast-growing renewable energy storage sector. The acquisition of patents of VRFB technology, combined with the reliable supply of Largo's high-purity vanadium, has culminated in what we believe is one of the most unique positioned renewable energy storage business. Our energy integration strategy is expected to provide strategic and competitive advantage over other competing batteries and offers potential customers a cost-competitive, long-duration VRFB solution for renewable energy integration.

As we look forward in the future, Largo Clean Energy remains a particular focus as we work to commercialize our superior VCHARGE battery system to capitalize on long-duration energy storage opportunities around the world. We are very excited to have Shazad Butt, our VP of Engineering, joining us on the call today, who will further discuss the competitive advantage of our VCHARGE technology and the strategic market opportunities.

I'm very excited to announce that Largo will host a VRFB Day in the coming 3, 4 weeks, which will outline our strategic business model, the technological system advantage and projected economics of our LCE business. We are looking forward to this announcement, and we will provide specific details in a press release in the coming weeks.

In summary, our financial position remains strong and the entire largo team remains diligently focused on executing the main -- the company's strategic growth projects to significantly enhance value for our shareholders. Growing interest for the battery sector will continue to drive future vanadium demand growth and the launch of Largo Clean Energy. We are working to strategically develop our clean energy storage business to provide safe and sustainable VRFB system that will contribute to the world's decarbonization efforts. Global energy storage deployment is expected to reach a whopping 2,850 gigawatts hours in 2040. And we believe long-duration VRFB will play a critical role in addressing this significant demand. We remain very excited for this year ahead as the company continues the necessary work to become a key player in the renewable energy storage industry.

And with that, let me turn the call over to Ernest, who will provide highlights from our annual financial performance in 2020.

Thank you, Paulo, and thanks to everyone for joining us today. As Paulo previously mentioned, 2020 was a transformative year for the company, and I would like to congratulate our entire team on their many accomplishments during the year.

For 2020, the company recognized revenues of $120 million from sales of 10,254 tonnes of V2O5 equivalent. This represents an increase of 14% in revenues over the $105.1 million in revenues recognized for 2019. In 2020, revenues per pound sold increased by 13% to $5.31, which compares to $4.69 per pound in 2019. For Q4 2020, the company recognized revenues of $42.3 million from the sale of 3,746 tonnes of V2O5 equivalent and on a revenues per pound basis achieved $5.12 per pound. This compares with $25.8 million in revenues from the sale of 2,860 tonnes and revenues per pound sold of $4.09 in Q4 2019, representing increases over the comparative fourth quarter of 64% and 25%, respectively.

The company recorded net income of $6.8 million in 2020 compared to a net loss of $27 million in 2019. This movement was primarily due to an increase in revenues and a reduction in operating costs; professional, consulting and management fees; share-based payments; and finance costs. For Q4 2020, net income was $6.9 million compared with a net loss of $4.3 million in Q4 2019.

Basic earnings per share for 2020 was $0.12, which compares to a basic loss per share of $0.50 for 2019. For clarity, these EPS numbers are on a post-share consolidation basis, as required under IFRS standard IAS 33.

On the cost front, operating costs decreased by 5% to $88.4 million in 2020 from operating cost of $93 million in 2019. In 2020, the company also achieved the lowest annual cash operating cost, excluding royalties, to date of $2.56 per pound sold of V2O5. This compares to $3.06 per pound in 2019 and is largely due to a reduction in direct mine and production cost, which was mainly attributable to lower costs recognized in Q2 2020 when the company was ramping up its sales activities and, importantly, cost reductions realized as a result of the expansion project completed in 2019. For 2020, total cash costs of $3.34 per pound sold were recognized, which was based on 22.6 million pounds of V2O5. For Q4 2020, total cash costs were $3.41 per pound sold based on 8.3 million pounds of V2O5 sold. Total cash cost guidance for 2020 was $3.20 to $3.40 per pound sold, underscoring the excellent performance in both Q4 and for full year 2020.

The company continues to maintain a strong liquidity position. Exiting the year with a cash balance of $79.1 million and a net working capital surplus of $93 million despite significantly reducing its trade payables in May mainly related to price adjustment under the company's former offtake agreement. Additionally, the company completed the prepayment of its outstanding credit facilities in Brazil in February of this year. As was previously mentioned, we are pleased to be debt free once again.

Before turning it over to Paul, I would like to thank all our front workers once again as well as our entire workforce for their continued commitment to ensuring the safe continuation of normal business operations.

With that, let me hand it over to Paul Vollant, who will provide an update on the company's sales and trading progress as well as the vanadium market.

Thanks, Ernest, and thanks, everyone, for joining the call today. I'm very pleased to report that in 2020, we exceeded the higher end of our sales guidance with total sales of 10,254 metric tonnes of V2O5 equivalent. Additionally, the company achieved a new quarterly sales record in Q4 of 2020 with 3,746 tonnes of V2O5 equivalent. In 2020, the company delivered standard-grade and high-purity V2O5 as well as ferrovanadium to customers globally. Following the logistics constraints experienced in Q3 2020, delayed and eased during Q4, and we continued to actively manage any logistic challenges to provide premium products and services to our customers.

Largo has successfully completed its long-term sales campaign for 2021 and secured contracts for a significant portion of its planned production. Geographically, these contracts are well diversified with a well-balanced global footprint. We maintain a strong focus on developing new markets for high-purity products and expect a gradual recovery of aerospace industry demand within Q2 of this year.

On the pricing front, during Q4 2020, the average price per pound of V2O5 in Europe increased by 1%, ending the period with an average price of approximately $5.4 compared with approximately $5.35 at the end of Q3 2020. The average price per pound of V2O5 for Q4 2020 was approximately $5.29 compared with $5.37 for 2019. We stated in the past and continue to have a positive outlook on vanadium prices for 2021. Robust vanadium demand and low inventories have supported prices across all our main markets, as evidenced by recent trades recording as high as $8.65 per pound of V2O5 in March. Demand is solid and stimulus packages linked to COVID-19 economic recovery will likely go into full effect this year, strengthening this trend even further. On the supply side, there have been several maintenance programs announced by large production facilities in the first quarter of this year, and we see inventories level at a low point.

As Paulo mentioned, in December 2020, the company launched Largo Clean Energy to provide safe, long-duration VRFB to the fast-growing global renewable energy storage market. Our entire team remains extremely focused on commercial deployment of our superior VCHARGE battery globally. VRFB's technical and economic advantages are well known, and Largo plans to unlock this technology's potential through vertical integration with our world-class Maracás Menchen Mine.

Additionally, and as we've mentioned on previous calls, the completion of our vanadium trioxide plant is expected in Q3 2021, and we will support the production of vanadium electrolyte for VRFB systems. We actively engage in discussions with potential end users for our VCHARGE battery and will keep the market updated on our progress. Recent sales of large-scale VRFB systems are further confirming the adoption of this technology around the world.

In summary, our entire team remains very excited for the years ahead. We continue the necessary work to become a key player in the renewable energy storage industry with a superior VCHARGE technology and world-class vanadium product line.

With that, I will hand it over to Shazad Butt, our VP of Engineering, who will provide an overview of our VCHARGE technology and the addressable long-duration energy storage market.

Thank you, Paul, and I'd also like to thank everyone again for joining the call today. I personally am also very pleased, quite pleased, to be a part of the Largo team and look forward to advancing Largo Clean Energy with our superior VCHARGE battery. As mentioned previously, we launched Largo Clean Energy back in December, creating an industry-leading, vertically integrated VRFB business that will provide clean and durable batteries to what we see as a fast-growing long-duration storage market.

What makes us particularly unique and positioned for it is that our LCE, Largo Clean Energy's, business strategy combines this access of this high-purity vanadium with one of the most advanced VRFB technologies in the market. This combination actually works to address key disadvantages that historically held back the first-generation VRFB products, such as low power density, low energy density, large footprint, lack of high-purity vanadium supply. And all of items translate into higher cost.

So I would like to highlight some of the key technical differentiations of the VCHARGE system that have actually solved these historic problems, enabling us to penetrate the market. At this system's core, at our system's core is the best-performing battery cell and step technology in the industry. Our high-power flow cell performance enables 5x reduction in core cell materials as well as system components, and this translates into significant cost savings and the smallest footprint of all known flow batteries. In addition, we have a patented purification process that addresses technical barriers to flow batteries. And this system enables us to resolve durability concerns in flow batteries while also providing cost advantage.

Another differentiation is that in our proprietary electrolyte storage -- is in our proprietary electrolyte storage system design. This, coupled with the vertical stacking ability in our design, allows for greater than 2x power and energy density within the same footprint, which also results in a significant cost advantage that's not possible with use of off-the-shelf tank systems, which many of our competitors rely on. And lastly, in terms of differentiation, our VCHARGE system has a modular design architecture, which allows for optimizing power and energy to specific project requirements. And that comes with a variety of different configurations that would suit different site layouts and then, in the end, minimize site costs.

In regards to the market being the next topic here, with our VCHARGE charge system, we look to compete in the -- long-duration energy sector, which is projected to grow significantly over the next 10 years, as mentioned previously. Long duration is defined to be between 4 and 12 hours of discharge. And it's required in a number of different applications enabling integration of renewables, such as commercial and industrial energy independence projects, micro grids and the integration of renewable energy for EV charging. According to Navigant, the long-duration storage market would grow by 8x -- by a factor of 8x by 2025, and that would be on the order of a $16 billion market globally. With an aggressive shift towards global decarbonization driven by Paris Agreement participants and large-scale company commitments, it's expected that long-duration energy storage sector will become a key addressable market for us, and specifically for products that can meet the associated technical and cost requirements.

On a long-duration basis, there are actually key attributes or reasons why our VCHARGE system is most suited to address this market as opposed to other conventional batteries, such as lithium ion, the first of which is the lack of degradation of our system over the course of time, very important factor. Our VCHARGE technology has been proven to last over 25 years with almost no degradation. On the other hand, most conventional batteries need to be replaced every 5 to 7 years in applications where the battery is fully cycled on a daily basis, which adds additional CapEx over the course of a 20- to 25-year lifetime, which is typical for grid scale and energy applications.

Second point I'll make here is that our battery's modular system design also provides for true decoupling of power and energy. This is very important. With this advantage, we can separate power from energy and scale energy independent to meet long-duration storage requirements. This lowers our unit cost at lower durations because adding energy to our batteries simply means adding tanks and electrolyte as opposed to adding entire systems, as in the case of conventional batteries and other -- our other competitors.

And then there are -- there's a third and fourth attribute that I'll mention here that come as of great significance and that's in regards to safety and sustainability to the battery systems. Our VCHARGE system is inherently safe with no risk of fire from thermal runaway, which is a key issue, again, known with conventional lithium-ion batteries. Additionally, since the electrolyte in our VCHARGE system does not degrade or change over its life time, the vanadium does not go anywhere. We can easily recycle and reuse the electrolyte, effectively making our battery one of the very few truly renewable battery systems. These last 2 points simply can't be made for conventional battery systems.

And the last topic I'll discuss here is in regards to demand. I'm very excited to say that we are certainly seeing a clear shift towards longer-duration energy storage applications. View of growth in the sector from a short-, medium- and long-term standpoint is quite straightforward for us. As midsized systems are being deployed and evaluated by our customer in the short term, technology adoption, recognition will occur and will open the doors for demand for larger batteries, larger-scale systems in the midterm. We see this long-duration storage market trend as a key opportunity for Largo as our proprietary VCHARGE systems have clear operational and economic advantage in long-duration applications.

As Paul mentioned, we are very pleased to report that our team is in active discussions with end users, customers around the world, to sell and deploy these systems -- our first systems. And I'm sure that we'll keep everyone well aware in this regard.

With that, I'll pass that back on to Alex.

Thanks, Shazad, and thanks for everyone for providing questions within our portal as well as in advance of the call. We will try our best to address as many questions in the time allotted.

So to begin the session, our first set of questions come from [Lee Cooperman]. The first reads, "It has been said that the battery technology you acquired from the previous company has failed because they could not line up a source of low-cost vanadium. As such, if supply and demand is already tightening without the incremental demand from the battery sector, isn't it likely that prices will increase and will make VRFBs noncompetitive? What price makes you competitive, hopefully?"

Paulo, I will hand this question off to you.

Thanks for the question, [Lee]. We believe the entity of VionX was not competitive for a couple of reasons. First, a lack of reliable, high-purity vanadium supply hindered the ability to successfully bid on projects. Second was the addressable market opportunity of long-duration energy storage demand. That's why we believe the acquisition of this technology by Largo was immensely strategic as we provide a vertically integrated solution at a time when the long duration market is set to undergo significant demand growth.

Vertical integration is imperative for VRFB deployment, generally speaking, for 3 main reasons: one being the cost of vanadium, with the second and third being price volatility and sales cycle. With vanadium being anywhere from 30% to 50% of cost, the volatility of vanadium make it difficult for typical VRFB companies to competitively price their batteries, especially when the sales cycle from contract to deliver could be between 6 to 24 months. Thus, by being vertically integrated, we do not need to add to the price of our battery, there's significant buffer required to account for price volatility. When you combine this with the technological competitive advantage, as put on -- by Shazad, this offers potential customer with a cost-competitive long-duration VRFB solution for renewable energy integration.

To your vanadium price point, management believes that our VCHARGE system will be economical in a wide range of vanadium price environments, specifically much higher than today's price. That's notwithstanding the many other strategic advantages our VRFB system has over typical conventional battery systems, such as lithium-ion. As Shazad mentioned, we expect to compete on the long-duration market where we believe we have a competitive advantage vis-à-vis lithium-ion. The VRFB triumphs in this particular market because there is a lack of degradation over time, allowing our battery to last more than 20 years. Our VRFB system is also inherently safe, and our system design allows us to separate power from energy. We are talking megawatts, for example, to hours to meet customer requirements. At long durations, we have the ability to lower our unit costs because it's simply adding more tanks of vanadium electrolyte rather than constructing an entire new battery system.

Discussed earlier on the call, Largo's planning on hosting a VRFB Day in the coming weeks, which we outlined and highlight the company's strategic competitive advantage in the battery sector. We believe our vertical integration strategy and innovative business model will set us apart from other competing batteries companies.

Thanks, Paulo. We have another question from [Lee Cooperman]. "You are repurposing the company to be more of a clean energy company, yet all members of management and the Board are mining people. What is being done to bring in battery knowledge to the company?" Paulo, I'm going to hand this one over to you as well.

Thanks, [Lee]. As part of the formation of Largo Clean Energy in December 2020, Largo hired key technical team members from the former VionX entity. I would like to highlight that combined, these team members can have decades of technical experience in the research, product development and manufacturing on the field of alternatives energy and advanced battery technologies. More specifically, this team is responsible for developing one of the world's most best long-duration VRFB technology to be used in the company's VCHARGE battery system. Over the last 5 years, our LCE team has spent approximately USD 150 million in development of this technology, which has been successfully deployed in 3 operational VRFB systems, a total of 6.6 megawatt hours. Notwithstanding, we will help LCE with additional human resources.

We have also just announced a new addition to the company's Board of Directors with the appointment of Mr. Ian Robertson, the former -- the founder and the former CEO of Algonquin Power and Utilities. Mr. Robertson has over 30 years skilled execution of global energy initiatives and was instrumental in the extraordinary growth of Algonquin including more than 2,000 megawatts of installed renewable generating capacity. The company is also evaluating potential candidates for a new Board advisory role with specific battery knowledge, who will help assist the company in executing on its Largo Clean Energy growth plan. We will look to provide the market with additional information on this process when appropriate.

Thanks, Paulo. We just have another one here from [Lee] as well. "What is the free cash flow you expect to generate in 2021?" And Ernest, I'll hand this question over to you.

Thanks, Alex, and thanks, [Lee]. We always appreciate your questions and support. We expect to generate between $45 million to $55 million of free cash flow this year, assuming current vanadium prices and, of course, our provided cost and CapEx spend.

Thanks, Ernest. And just sorry, one final question from [Lee]. "Does the company have a view of the outlook for the price of vanadium this year?" And Paul, I'll hand this one over to you.

Thanks, [Lee]. We've mentioned before, and we continue to have a positive outlook for vanadium prices for 2021. Already, prices in key global markets have experienced significant increases since January. Demand has been strong since the start of the year. Stimulus packages linked to COVID-19 recovery should gain full effect within this year and could strengthen this trend further. We're also working very hard to increase usage of vanadium in batteries and other applications. And on the supply side, there has been several maintenances at large production facilities in the first quarter, and inventories are very low at the moment.

Thanks, Paul. We've received a few questions from James Young. I'll try and divide these with other questions as we progress through the call. I will start with the first one, "How does management think about the trade-off between selling V2O5 in the spot market at higher prices versus allocating these volumes to VRFB sales?" Paulo, I'm going to hand this question over to you.

Thanks, Jim. It's a great question and one that we are happy to address. We believe that we can continue to maximize strategic value from both markets as we continue to grow our VRFB division. We have the strategic advantage of being commercialized, flexible with the world's highest-grade vanadium. And we'll continue our focus on growing our vertically integrated battery business as the long-duration market continues to develop. To that point, we also will continue to evaluate our source potential in Maracás to explore new opportunities to grow our supply when needed. As we mentioned previously, management expect to release our new tech report in Q2 2021. What's the most important, though, is that our goal at Largo is to continue to maintain our commercial flexibility for our customers and strategically address the markets which are in demand.

Thanks, Paulo. The next question from [Jim Reeds]. "With increased V2O5 prices, what does management expect to do with the cash?" And then additional just follow-on question to that is, "Are you able to address the ability of the company to pay dividends from the excess cash flow?" And Paulo, I will hand this first part of the question over to you, and Ernest, ask you to answer the second one. Paulo, go ahead.

Thanks, Alex. Thank you, [Jim]. We have a pipeline of organic growth projects at Largo that we believe will have and add significant value for the company. As we released this morning, our Board has approved the ilmenite concentration plant, which is the first phase of our overall titanium project. We began a pilot plant in October 2019, and results to date have been sufficiently promising to justify approving moving forward with a full-scale plant. The CapEx associated with our ilmenite concentration plant is about USD 25 million. As you are aware, we are looking to complete our V2O3 plant this year, which has CapEx of between $7 million to $9 million. This is a significant project as it avails the company of more high-purity production, which is used in the chemical industry, but basically most specifically used in the manufacturing of electrolyte for VRFBs. We are also very focused on developing Largo Clean Energy, which we believe is a significant value-add both to the company, and will require additional investment as we move forward.

To summarize, again, we currently remain focused on deploying excess capital on our organic growth projects, which we believe we will add tremendous value to Largo going forward.

Ernest, I will hand this over to you, pleas.

Okay. Thanks, Paulo. That's an excellent answer. I think I would just reiterate Paulo's point in that the company remains focused on developing its organic growth projects that have significant value-add opportunities. However, the Board have explored this idea previously, and we will continue to evaluate this opportunity going forward.

Thanks, Ernest. Our next set of questions come from Andrew Wong at RBC. The first one reads, "Could you provide updates on plans regarding the Largo Clean Energy business?" I understand that it's still in the early stages, but with continued growing interest in expanding renewables and a focus on having a stable electricity grid, it seems like now is a good time to be ramping up the business."

Another follow-on was, "How does Largo weigh the positives from having a stable VRFB business versus having profit available in a potentially tightening vanadium market and realizing this upside?"

I will hand over the first part of this question over to Shazad and ask, Paulo, for you to address the second part.

Thank you, Andrew. I appreciate your question as well. And as we've mentioned during the call today a number of times, we actually are already actively engaged with customers and continue to aggressively bid on new projects that come our way. My team is also very much at work at establishing our supply chain such that -- with the goal of being ready for production by the -- before the end of this year, enabling us to deliver on projects next year.

An important point to note is that the LCE team has been developing this product for over 5 years. Actually, it's a number of years past that, and -- as we previously mentioned. And we've successfully deployed multiple systems in the field, have demonstrated -- already demonstrated performance in the field for over 5 years and solid performance in the field for over 5 years. So leveraging this work, the validation work, and we are now executing a plan actually to take the product to market.

The last point here is that my team is and on an ongoing basis will remain focused on a continuous improvement of the product as well as its cost. That said, we remain competitors and in a very competitive position. In that regard, we've developed a cost reduction road map, and I'm going to be very excited to share that on our upcoming VRFB Day.

With that, I'll hand it over to you, Paulo, second question. Paulo?

Sorry, I was on mute. Sorry. Thanks, Shazad. Also thank you, Andrew. I believe that we have previously touched on this already. But I think it's good to hint again this point. We continue to be commercially flexible in this regard, and we will continue to address both markets as we strategically develop our VRFB business. Our commercial flexibility and vertical integration strategy grants us the opportunity to reap the benefits of the overall vanadium market. We are able to maximize value in multiple vanadium price environments from the advantage granted by our vertical integrated business model. Alex, please.

Thanks, Paulo. The next question reads, "What is the expected return on invested capital for the traditional mining business versus the VRFB business?" And Ernest, I think I'll pass this one over to you.

Thanks, Alex. Although I don't think we are able to completely address this question, we would like to highlight that it remains dependent on the vanadium price. As we touched on before, vanadium has been historically a volatile commodity, which has made it difficult for most primary producing vanadium companies and VRFB companies to succeed. However, that's not the case with Largo. We have one of the lowest cost and highest grade of vanadium in the world, and we have complete commercial flexibility. That gives Largo the opportunity to strategically place its units within the high-purity vanadium section -- sector that fetch price premiums.

The vertical integration of our VRFB business also allows the company to strategically compete not only on a cost basis but also on a technological basis in a wide range of vanadium prices as well. But to your point, the expected return on invested capital will fluctuate for both businesses based on the vanadium price environment.

Thanks, Ernest. We have just one more question here from Andrew. "Largo looks to be in a really good financial position now with cash on the balance sheet and the positive cash flow. It looks like there may be a few different potential uses of that cash, the Clean Energy business, the titanium project, FeV plants and potential return of capital to shareholders. Could you talk about your priorities among those different options and how you're evaluating the opportunities against each other?" And Paulo, I'm going to pass this one over to you.

Thanks, Andrew. As you are aware, the company will look to proceed with projects with significant positive IRRs and add the most value for Largo. Battery business is aiming a green purpose with a great return in the future. Titanium project is aiming to increase the competitiveness of vanadium supply. Those projects are complementary in our vertical integrated business model. As we announced earlier, the Board has approved the ilmenite concentration plant, which is the first phase of extrapolating the full value of our titanium project. The company has also been working extremely hard over the last 3 months to develop Largo Clean Energy to starting battery deployment.

To the ferrovanadium point, we have postponed the construction of this plant, and we'll continue to utilize the flexibility of third-party converters going forward. So it's not our priority that moment.

In regard to the capital return to shareholders, we'll continue to advance our strategic growth projects as we believe these have immense opportunity to add value to the company. Alex, please.

Thanks, Paulo. There have been a few questions submitted regarding the company's recent sale of iron ore. I will read them out as follows: "Largo announced the first sale of iron ore on Monday this week, which, given current iron ore prices, could be very lucrative. So I have a few questions on this. I understand the reluctance around talking about specific commercial terms, but could you give us some guidance on price versus market? What, if any -- if there are any costs associated with the iron ore production? Or is it -- and sorry, discuss the 2 million tonnes stockpile included as part of -- is the 2 million stockpile included as part of your reported inventory? And if so, what's the carrying value?" And Paul, I'll pass this one over to you.

Thanks, Alex. Although we've not disclosed the economics associated with our first sale of iron ore, this sale was profitable for the company and reflective of the current high market prices. We will keep on capitalizing on higher iron ore price environment going forward as it is expected to continue for the next couple of years. Regarding production costs, we are currently assigning all our costs on vanadium production. However, there are logistic costs directly associated with this sale.

And to your last question, no, the iron ore stockpile is not included as part of our inventory, and there is no carrying value associated. Going forward and concurrent with our announcement this morning, we will look to continue to exploring the economic feasibility of extracting additional value from the company's mineral resource.

Thanks, Paul. I have one more question that we've received here, in the essence of time, from Andrew Wong, RBC. "Regarding the slide vanadium producers in China, I understand there is a dynamic of higher iron ore prices bringing in low-quality, higher-cost iron ore, except ferrovanadium. First, how close are we to capacity from those slag producers? And at what iron price -- iron ore price does vanadium-bearing iron ores typically get taken out of production? And the second point is has there been any rebound in activity and vanadium demand from the aerospace sector? And when would you expect that market to fully recover? And how does that impact realized price expectations?" And for this last question, I'll pass it over to Paul.

Thanks, Andrew. Great question. First, I'd like to say that iron ore prices have been over USD 100 per tonnes on a CFR China basis for more than 7 months already. We're confident that secondary production of vanadium in China has been maxed out for a while. If you look to recent import/export vanadium data out of China, the country's ability to provide vanadium supply, in Q4 2020, China imported 2,665 tonnes of V compared to export of 1,759 tonnes. This shows a clear indication that China -- Chinese demand is extremely robust. Also, and as I touched on earlier, there have been several maintenance programs announced at large production facilities in China.

Regarding the price point for seaborne iron ore to replace lower domestic grade, it depends from one facility and one region to another, but we see this number around the $70 to $80 per tonne level. Today, we do not see this replacement happening in the near future.

On the aerospace side, we see a gradual recovery starting from Q2 of this year and believe it will take time for this market to recover to its historic demand levels. We remain committed on expanding our entire high-purity customer portfolio to maximize net price and opportunities within this market.

Thanks, Paul. Ladies and gentlemen, that is all the time that we have for today's call. We'd like to thank everyone for joining us today. As we noted earlier, Largo's annual 2020 results press release, financial statements and MD&A can be found within the Investor Relations section of our website at largoresources.com. Thank you for your time, and I wish you all a good rest of the day. Thanks a lot, everyone.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.