Largo Inc. (LGO) Q3 2019 Earnings Report, Transcript and Summary

Good morning. My name is Jessica and I will be your conference operator today. At this time, I would like to welcome everyone to the Largo Resources Third Quarter 2019 Financial and Operational Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. Mr. Guthrie, you may begin your conference.

Thank you, operator and welcome everyone to the Largo Resources third quarter 2019 results conference call. Today's call is being recorded and a replay will be available starting tomorrow in the Investors section of our website at largoresources.com. Our third quarter 2019 results press release, MD&A, and financial statements are also all available on the company's website and on SEDAR. Some of the information you’ll 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, cash operating costs excluding royalties, revenue adjustment payables, revenues per pound sold, Canadian sales per pound sold, revenue adjustment per pound, and estimated revenue, forecast cash and revenue investment payable at April 30, 2020 will be discussed during this call. Actual results 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 all available on SEDAR and on the company's website. Further information regarding Largo’s use of non-IFRS measures is available in our third quarter 2019 results press release and in the company’s MD&A for the three and nine months ended September 30, 2019. The financial amounts presented today will be in Canadian dollars, except as otherwise noted. 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 derived from information provided by industry sources. Largo believe that such market and industry data is accurate and the sources from which have been obtain are reliable. However, we cannot guarantee the accuracy of such information and we have not independently verified this assumption upon which production of future trends are based. Speaking first today will be Largo's President and Chief Executive Officer, Paulo Misk. Speaking second will be Largo’s CFO, Ernest Cleave, who will provide additional detail on Largo’s Q3 2019 financial performance. Following Ernest, Largo’s Director of Sales and Trading Mr. Paul Vollant will then provide an update on the sales and trading business and vanadium market. Finally, we'll open the call to questions. I will now turn the call over to Paulo for opening remarks.

Thanks, Alex, and welcome everyone to our quarterly update conference call. Maracás Menchen Mine performed well in third quarter 2019 highlighted by 2952 tons of vanadium pentoxide produce at a cash operating cost excluding royalty of $2.81 per pound of V2O5. Although the company achieve the lower operating units cost during the quarter profitability continue to be impacted by the result of lower vanadium price combined with the company’s management of trade receivables and payables as a result of its current off take agreement and consequently the company recorded a net loss of $8.1 million in Q3, 2019. The company believes that the vanadium prices are unstably low and expects sentiment and price to improve as evidenced by the recent price increase of ferrovanadium in Europe. Despite our huge increase of vanadium consumption in China over the last two years good price environment as long as you're able to dramatic increase of Chinese like reduction in 2019 from the ATM deposit to do a high iron ore prices. The increase of Chinese vanadium supply combined with eye on substitution put vanadium under pressure through 2019. Going forward we expect vanadium price sentiment to improve falling decrease of production from high costs on co-producers, a decline in this lead production and a decline in the other substitution on the back of lower vanadium prices. On the cost front, the companies Q3 2019 cash operating costs excluding royalties were $2.81 per pound of V2O5 in Q3 2019 representing decrease of 8% over Q3 2018. The company has also lowered its 2019 annual average cash operating guidance excluding [indiscernible] from the range of $3.45 to $3.65 to a range of $3.30 to $3.40. Reflecting cash operating costs performance up to now and expected positive impact on foreign exchange for the balance of the year. Total sales of V2O5 in Q3 2019 were 27 tons to 20 tons, which includes 360 tons of high purity V2O5. The company's total sales of high purity V2O5 nine months ended September 30, 2019 are 1160 tons. As of September 30, 2019, the company has produced 7566 tons of V2O5 and will continue to maintain its annual production guidance range of 10,000 to 11,000 tons of V2O5 in 2019. On August 20, the company announced that it had formally given notice to Glencore of there is no renewal of its off-take agreement data May 14, 2008. In accordance of this notice, the confidence of off take agreement, will expire effectively May 30, 2020. We recently announced the appointment of the Mr. Francesco D'Alessio, as Largo's Head of Sales, America, who will support the company's vanadium sales and trading business with a particular focus on North and South American markets. Mr. D'Alessio brings many years of industry experience, most notably as the global Sales Manager for Vanadium for Ebrus and will pay a key play, a key role as Largo continues to develop, development of its sales and trading strategies. The company has attended multiple conferences while continue to build the back-office team to support sales and ensure highest quality of service from May 2020 onwards. We also pleased to report that the Board has approved the construction of a ferrovanadium conversion plant at Maracas Menchen mine. Ferrovanadium is essential in the production of these two products, which make up personally 91% of the global vanadium markets consumption. The construction of the company's on ferrovanadium conversion plant creates downstream advantage and great flexibility as it eliminates the dependency of the convert V2O5. And that was productive using third party converters. The company has begun the best engineering studies associated with the construction of the plans and look forward to provide an update to the market in the near future. Company is also advancing basic engineering studies to further evaluate the economics associated with upgrading of the Maracas Menchen Mines non magnetic tailing using a chemical plant in the concentration, floatation to produce TiO2 oxide. The company's non-magnetic tailings are composed of ilmenites, which also contain high purity TiO2. The company starts a pilot plan in October to study floatation performance and anticipate results of the ongoing study in Q4 2019. We are also pleasant to announce a strategic partnership with Boston Metal to further advance its molten oxide electrolysis damping using V2O5 to produce ferrovanadium. Boston Metals dozen metals production process is more efficient, less costly and greener with the molten oxide electrolyte. In summary, operation at Maracas Menchen Mine continued to perform well in the third quarter of 2019. The board realized that the share price does not currently reflect the value of the company and is considering institution share purchase program by a way of a normal growth issue bid. Management remains every confident that this very strategy and well aligned and we'll remain very focused on maximizing value for all of our shareholders. So with that, let me turn the call over to Ernest, who will provide the details on our third quarter 2019 financial performance.

Thanks, Paulo, and thanks to everyone for joining the call today. As Paulo previously mentioned that the company recorded a net loss of 8.6 million in Q3 2019, compared to a net income of 71.4 million in Q3 2018. This movement was primarily due to decrease in revenues and was partially offset by decreasing operating and finance costs during the quarter. Following the 20.4 million reduction in revenues as a result of the remeasurements of trade receivables, payables under the Glencore contract, the company recognized revenues of 32.1 million in Q3 2019 completed with revenues of 149.5 million in Q3 2018. Revenues per ton sold in Q3 2019 was $5.36 or US$4.06, which compares to $27.12 or US$20.73 per pound in Q3 2018. Vanadium sales from a contract with a customer was 52.5 million in Q3 2019 compared with 120.5 million in Q3 2018. This decrease is primarily attributable to a decrease in the V2O5 price with the average price per pound of V2O5 of approximately US$7.16 for Q3 2019 compared with approximately US$19.66 Q3 2018. Company generates a positive cash from operating activities on Q3 2019 with net cash provided by operating activities of 11.7 million, compared with 113.4 million in Q3 2018. This decrease was primarily due to revenues exceeding direct mine and low costs and royalties by 8.1 million compared with a $120.2 million in Q3, 2018. This contributed the cash use before non-cash working capital items of $1.7 million compared with cash provided before non-cash working capital items of $120.4 million in Q3, 2018. Cash used in financing activities in Q3, 2019 was $28.1 million compared with $64.2 million in Q3, 2018, this movement is primarily due to the decrease in the repayment of long-term debt from Q3, 2018 of $219.2 million, a decrease in debt issue cost interest, guarantee fees and other associated fees paid a decrease in the change in the restricted cash and an increase in net interest income. Cash used in investing activities was $15.7 million representing an increase of $11.7 million from the $4 million seen in Q3, 2018, this increase is primarily due to the expansion project being undertaken by the company. The net change in cash in Q3, 2019 was a decrease of $35.5 million compared with an increase of $43.9 million in Q3, 2018. The company’s trade payables balance at September 30, 2019 was $83.2 million and the revenue adjustment payable was $92.3 million. The assuming V2O5 prices remains the same as of September 30, 2019, the company’s total estimated revenue adjustment payable to September 30, 2019 is $89.8 million. As of November 13, the company’s estimated revenue adjustment payable for V2O5 sold up to October 31, 2019 is approximately $95.7 million. Given the overall decline in the market price of V2O5 since December 31, 2018, the company anticipates that it will continue to realize lower revenues including significant negative re-measurements of trade receivables payables. In future periods until such time as the decline levels off or prices increase. The company has forecast its expected cash balance and the estimated revenue adjustment payables as of April 30, 2020 under three different vanadium price scenarios. Each scenario assumes that the vanadium price presented applies from October 31, 2019 to April 30, 2020 and assumes that the company sells 100% of its production during this period. Constant foreign exchange rates and cash operating cost per pound produced consistent with the results to date. At a vanadium price of $4, the company’s forecasted cash and the estimated revenue adjustment payable at April 30, 2020 will be a $131.3 million and $103.7 million respectively. That is net of $27.5 million. The vanadium price of $4.73 which is of the currently as the company’s forecasted cash and estimated revenue adjustment payable at April 30, 2020 are $138.1 million and $95.5 million respectively with a net of $32.6 million. At a vanadium price of $5.50, the company’s forecasted cash and estimated revenue adjustment payable at April 30, 2020 will be $144.7 million and $86.6 million respectively for a net of $58.1 million. On the cost front, operating cost for Q2, 2019 was $31.5 million compared to $36.7 million in Q3, 2018 and include direct mine and low costs of $22.2 million depreciation and amortization of $7.5 million and royalties of $1.8 million. Lower operating costs in Q3 2019 compared to Q3 2018, of primarily due to a decrease in royalties as a result of a decrease in V2O5 prices during the quarter. Cash operating costs excluding royalties in Q3 2019 were $3.71 versus US$2.81 per pound compared to $3.99, or US$3.05 in Q3 2018, representing a decrease of 8%. The decrease seen in Q3 2019 compared with Q3 2018 is largely due to higher production during the quarter as well as an improvement in the global recovery level from Q3 2018. With that, I will now turn the call over to Paul Vollant who will provide an update on the company's sales and trading business and the Vanadium market. Falling Paul's updates, we will then open up the floor for questions.

Thank you, Ernest. And thanks everyone for joining this call today. I will jump right on to the recent vanadium price decline and what we believe many people on this call are concerned about. First of all, on the supply side, increased production from China in the first half of 2019 is now reverting due to the recent price decline. Lower Vanadium and iron ore prices are already leading to supply decrease and shut down in China. On the demand side, still means that we're long on Vanadium following the market tightness in 2018. Probably over committed in 2019 and current contracts are being carried forward into 2020. We expect the situation to normalize early next year. Also, high prices in 2018 led to substitution with niobium. The impact in Europe might have been have as high as 15% for some steel mill, however, we already seen steel mills reverting to Vanadium and strongly believe that the current price levels should lead to healthy increase in Vanadium acquisition rate next year. On the positive side, unlike in 2015, stock levels at steel mills are low and restocking should happen in the coming months. Overall, we are strong believers that the price levels that we see today, we ultimately without high cost producers as evidenced in the previous downturn. Regarding the sales and trading division, as Paulo mentioned earlier, we're very pleased with Francesco D'Alessio recent appointment. Francesco brings more than four brings a very long experience in the sales and trading of Vanadium and ferroalloy. Francesco spent more than four years as a global sales manager for Vanadium at EVRAZ, where he led the commercial strategy and sales to end users. Francesco supervised the sales team, as well as agent on a global basis. While looking after all aspects of pre and after sales functions, including logistics and a strong focus on cost management With Francesco myself and the rest of the Largo team in Brazil and Canada, we now have a very strong groups to manage direct sales in Europe and America. Our focus is now on building the back-office team to see both sales and ensure highest quality of service from May 2020 onwards

Alex, I leave it up to you now.

Great, thanks Paul. I think we’ll now open the call to questions.

[Operator Instructions] Your first question comes from Heiko Ihle of H.C. Wainwright. Please go ahead.

Hey guys, this is Marcus Giannini calling in for Heiko. Thanks for taking my questions. Heiko was tied up on another earnings call. Yeah. So my first question is in regards to Board approval of the construction of the ferrovanadium conversion plan at Maracas. I understand we're only in the engineering study part of this. But can you provide some preliminary color on timing, cost savings and capital requirements?

Thank you for your question. The ferrovanadium plant is very important assets that’s everyone is going to create conditions to support our commercial strategies to give us flexibility. And we based on our engineering studies, we expect to expand the range of eight to 10 million US dollars. We started the implementation next year, and we expected the hump up. The startup will be ready by January 2021.

Okay, great. And then regarding the Glencore agreement, at this point, we're six months out of the day when it expires, besides the hiring of Francesco what other preparations are being made behind the scenes for the eventual ending of the contract?

Paul and Francesco, and including myself, we are so focused to being touch with the market, talking all the customers have been attending the Congress and the conferences that all the customers have been attending as well. So we are very confident that everything we have done, we will have will lead all the strategy that we have planted. So, we are very happy with everything we've been doing. And make sure that we're going to have a very good commercial results, creating opportunities for Largo.

Okay, cool. And then my last question is, what's your best guess for vanadium price that would yield breakeven EPS.

Yeah, Ernest will answer that.

You know, I'm going to deflect the cost of breakeven EPS and rather focus on let's call it a cash breakeven. And I think it was something in the range for next year because there's a transition here for Largo on our cash breakeven basis, we're seeing something between $5 and $5.50. Something in that range would be required for cash breakeven to pay for a certain trading activities or normal operating activities. And obviously our CapEx etcetera, I hope that answers it partially but I'll deflect on EPS per share.

Okay, now, that's very helpful. Thanks a lot. Thanks for taking my questions.

Your next question comes from Andrew Wong with RBC Capital Markets. Please go ahead.

Just going back to the post Glencore transition. Do you expect any sort of disruption or transition period in sales when that contract expires and can we expect kind of like a seamless transition on the selling in the sales volume and maybe elaborate like other contracts or arrangements that are already in place to take on 100% of the production.

Thank you. Andrew it's too early to have the numbers from the contract that we are just setting and firming with the customers but we don’t expect to have any problem any disruptive commercial issues. Of course, from May we have talked converting material to V2O5 to supply the customers. So we may have a lower sales on May and beginning of June. However, all the high-purity will be ready to be delivered to our customers from the 1st of May 2020.

On the share buybacks you mentioned in the prepared remarks, could you just provide some long-term plans around that it looks like we have a better line of sight on the balance sheet and the impact of measurements given where the share price are today and looks like they are undervalued and what the timing around the buybacks and is there any interest to take on some extra debt to do some buybacks in the near term.

We are still evaluating all the opportunities regarding this. We believe our low share price create a good momentum for doing. However, we need to take into consideration all the interest of the shareholders. Ernest do we have anything else to.

So similar to our CapEx projects something like NCIB would also be subject to obviously sufficient liquidity on the organization. So we're busy making those evaluations but certainly from a fundamental perspective, just looking at the share price, it does seem like a opportune time, but we don’t have ranges or magnitudes to share at this time. Hopefully that something we can share with the market in the near-future that’s but certainly conceptually we are sitting behind this idea. So we need a little bit of passage of time to see a how Vanadium prices react and get a good sense of our liquidity but subject to those constrains, I think it's well worth it.

And just one for Paul, can you talk about on demand side in China and it looks like industry data, demands up 15% to 20% this year, how much of that is driven by higher steel production versus increase use of vanadium and steel and then just what's the outlook for 2020 given that maybe the out of, steel production is a little bit lower going into next year. Thanks.

Very good question actually, and as you've mentioned we've seen content in China increase rapidly over the past two years. Vanadium consumption has gone up 24% in 2018 and the 2019 combined. We expect that trend to continue very strong next year especially on the utilization rate and as new rebar standard is being implemented we’re going to see more and more utilization rate in China. On the steel demand side, more difficult to comment, but I think that’s going to add up to the consumption of that.

I just want to like to complement that, one very good news regarding China is the consumption has increased as Paul said. In a supply side, we could see in 2019 huge increase of production from this leg. It is due to high price of iron ore. So, what we expect and it's based on the traders expert in – iron ore price, iron ore price will decrease even more in the range of $70 to $75 per pound, per ton. So, it's going to reduce the vanadium supply from the vis lags, it’s a – if you look at the DMO report one of the regions, the second most important in China they have a cost of production in iron ore in the range of $80. So it will create a situation to do not have enough V2O5 being producing in China considering the iron ore and considering the substitution of niobium– which it was in the range of 15%, 18% in 2019. And based on the consultants that we have talked they expect to be just 5% in 2020. It’s a huge difference. Another factor is the strong co-producers that which have a very high cost of production. When you look at the DMO report, in the range of $8 per pound of V2O5. So I don’t expect that they’re going to keep producing V2O5 in 2020 considering the current price. So, it’s a completely different perspective of the markets in China for next year. And it’s a, we can see the market much stronger for the next year.

Okay. Thank you.

Your next question comes from Curt Woodworth with Credit Suisse. Please go ahead.

Yeah. Good morning. Ernest, you’ve talked about sort of cash breakeven at 5, 5.50 for next year but how would you think about that numbers sort of pro forma for moving beyond Glencore and high purity I know that in the past under granted the much higher price environment Mark kind of used to talk about potentially up to a $3 per pound kind of accretion from more optimization post Glencore and high purity. Can you kind of update us on your thinking around that?

Yeah. I guess the first point to make is, given that is a transition year next year, as you can appreciate we are actually being there is a bump in our working capital that happens at the transition point next years. So the point that we actually take over from Glencore's saleable material and undertaking it ourselves to the point that we get paid our working capital stockholders from a very short period of time to something in the region of about 100 days. So over the course of that year 2020 from a cash perspective, you're not going to effectively have the benefit of those the full year sales in your production. So that's why we're guiding in that $5 to $5.50 range, but you know in a normalized year from 2021 onwards that would come down fairly significantly. I'm not going to commit to a number right now, but as you can imagine you could have up to potentially a quarter of your production but you don't have the cash benefit in 2020 where as in a established year, you won't have that impact anymore. So we're going to have our onetime impact on that working capital and as obviously that can change some time subject to the vanadium prices, but effectively once it's embedded in the system and the company's working capital becomes less of an issue and you essentially consistently selling month-to-month. So definitely lower but don't try and peg me to a number just yet. We probably at a future date talk about, what's the sustaining post Glencore number but we don't have that to share at the stage.

Okay, and what's the working capital assumption that underpins the $5 to $5.50 breakeven?

Yes, so there is shipping assumptions upwards of 45 days and while there are payment cycles in the region of 55 days, obviously on things such as V2O5 because there is a much quicker turnaround time you get paid much earlier and FEV conversion you're at the far end of the scale. So we've taken some very conservative assumptions and we will see how it goes, but at this stage given that we are the infancy of starting off the sales and marketing proper responsibility to be as conservative as possible in the working capital side so they're always options and on trade finance, fixation which effectively committees that period of time, but we're not taking any well into account. From a planning perspective we just want to stick with a fairly conservative.

What's the rough dollar value of working capital you said you're thinking for next year?

This countdown and because obviously, you have seen and we were thinking of the range of 40 million before those were at different vanadium prices so right now it's probably in the region of 20 million to 25 million but that's very rough.

The next question comes from Lee Cooperman of Omega Family Office.

Thank you a couple of questions and observation. I wasn't clear as the 5 to 5.50 cash breakeven level is that the US dollars a Canadian dollars?

It's US dollars.

Okay. And then, what are you currently selling the product for?

What are we currently the selling the product 4...

Well you need 5 to 5.50 to breakeven cash what are we currently realizing on our sales?

Yes, so this is a challenge. If you look at the third quarter for instance, if you take into account the revenue adjustment the effective of price to Largo was just over US$4, $4.06.

Okay. So, we’re losing money on an operating basis. It wasn’t clear from the comments made and I may have missed this you may have answered and I apologize for asking the same question again. But what do you expect your low cash position to be between now and the cessation of the contract with Glencore?

Yeah. So, we provided the, in the MD&A we provided four scenarios. We took a very punitive view at $4 assuming $4 continues between now and the end of April and suffice to say that we do not see that happening then we took the current price as one of the scenarios and then sort of a normalized price of $5.50. So, in Canadian dollars the forecasted cash under those three scenarios starting into first is I'll just use round numbers here. But $131 million, $138 million and a $145 million that’s all Canadian.

At the end of April, but the contract ends, so that's at the end of the contract so in any scenario you expect to have after paying for the re-measurement you expect to have a $130 million of cash Canadian, is that the way I understand it correctly?

Correct, I mean the asset point in time, at April 30th you will owe Glencore estimated and I give you the three numbers in sequence again these are all Canadian again, a $103 million, $95 million and $86 million. So the net numbers just net of those are starting with the $4 scenario is about $27.5 million, that would be our most punitive view, $42.6 million is the current price scenario. And then under $5.50, $58.1 million.

Let me give you a recommendation, I find it very bush league when companies talk about we’re thinking about buying back stock. We’re not looking at to support the stock we’re looking to take advantage of Mr. Market's mistakes. Now if I was you, I wouldn’t buy any stock back, because you guys are being very wrong in assessing the outlook for business. And I would wait for things to stabilize before you do anything even though I am a fan of stock repurchase I also believe one has to be very prudent about what they’re doing. And so the low cash position of under C$130 million in a certain environment would not suggest you're a candidate to do stock repurchase unless you know something I don’t know. That's my recommendation or suggestion.

But we agree with you, Lee…, at the end of the day.

Well stop talking about, thinking about it you know any company can think about it, just don’t talk about it. It just comes across as very promotional.

Yeah. No, no we take that on board, we – as I think and we try to say in my opening comments all of these things including even the couple of projects are all subject to sufficient liquidity and runway that you’re seeing right now.

I think all your comments were very appropriate, very on point, I mean if I look at this company a year or a quarter ago, you were earnings over $300 million as a business and that’s before the Glencore contract and you guys are saying that that Glencore contract probably cost you $100 million of EBITDA. So, this is a company with the market cap there over $500 million whatever it is of the equity, there is no debt that earned almost at a year ago and everything is cyclical. So I can understand why you’re thinking about it, but I would just say either you do it because you have enough to handle on your numbers or don’t talk about it until you do have a handle on your numbers, that’s all just a suggestion. Thank you.

That’s fair. Thank you.

Your next question comes from Robert Neil of [indiscernible] Capital. Please go ahead.

I had a couple of questions here just kind of follow up and not keep bringing up all the Glencore. But I just want to clarify, confirm one aspect of the agreement, is this correct statement that there will be absolutely no negative effective of the re-measurement post calendar Q2 2020 meaning. What I'm basically trying to figure out that there is some type of tail on this agreement which as you know is highly redacted in the filed document, is there any sort of tail on that or is it literally there's no negative effect after May 15 in 2020.

We can't talk about it, but I think what we're sort of saying in a inadvertent way is we provided the numbers both on cash and payable. Other than those numbers we provided we're not forecasting any other deleterious impact or something that we need to inform at this stage. So that’s it.

Just giving a better overview about this re-measurement, we see the market of vanadium, stronger from now. We see already in this week vanadium, ferrovanadium in Europe being rise up by 8%. So it seems that the vanadium price hit the bottom and going up from now, I mean all the re-measurement is going to be positive instead of negative. So we can't see the price going lower than what we're doing today and it's going better in the future. It should not impact our results anymore.

Rob just going back to your question again, all the forecast that we provided here, assume a sort of steady state vanadium price and over time then whatever adjustment in the system really are averaging at or through the system. If we saw hypothetically some major reduction in price in the couple of months leading up to April 30th, then yes you could have an additional price adjustment that would go beyond April. But that’s not what we're foreseeing but that’s ultimately touchy dependent on vanadium price. So just to make sure that we got the record straight here on this that ultimately is just going to depend on vanadium price. So if things maintain and improve as Paulo and Paul think they will and they know, no further impact but if there is some unforeseen or un-forecasted correction in the market will change, I shouldn't say correction. That could hurt us beyond April.

That’s fair and I appreciate the insight but I think everyone on the call will likely agree that this is the lowish vanadium retail fire price anyway, but in the event I don't know, I'm making up a number here in the event it was $2 V2O5 and it's August of 2020, what I think I hear you saying is there could continue to be follow on negative effects. At some point when does this all roll, is there a hard date one all of that sort of stuff rolls off despite the price or does it just kind of depend.

I can't give you the term period after the cessation but suffice to say that the price, if the price suddenly reduced in the run up to the end of April that would have, a cash impact that extended beyond the end of April that's about as much as I can say.

No, no I appreciate it, fair enough and there is one other question if I may on the kind of the issue of lower prices and obviously it's causing we've seen in your results but my understanding and I'd just like to confirm your all's internal view is relative to other major or even minor V2O5 and ferrovanadium producers on the globe. It doesn't seem like there is anyone who is close to $2 US dollar $2.81 production price. For example, if you look at your other publicly traded peer that I'm aware of Bushveld and their acquisition of Vanchem I mean. How, I've got my own view but curious what your view is of your cost advantage relative to Vanchem and both of the operating cost side as well as the fact they're balance sheet. They're kind of where you all were three or four years ago, they're having to take on debt and CapEx to get to the point where you are and I was just curious your view internally on what sort of advantage that provides you relative to the rest of the market.

But one thing that we believe that we must be very competitive, Largo is focused on having the lower production costs as possible. And I think we have to see very good way to now and we're going to keep focus on that for the future. We prefer to have a very conservative strategy on that on the cost point of view, that the way we will face any volatility of the price of the vanadium price in the market and considering that any acquisition that we may do or all the opportunity we see in the market will not contribute to reduce our production costs. So our strategy is to focus on Maracas organic growth and to of improvement and to get the business as strong as possible. That way we see the strategy actions in order to be more competitive. I don't have anything to say regarding other company because each one has their own strategy, but have anything to add Ernest.

No, I agree with Paulo. I think the way the business is set up we're in a extremely competitive position because of our lower costs. And for all the producers the lion's share of vanadium producers in the world these are unsustainable price levels, so we'll just leave it at that. You know that we think we're competitive even in these low cost environments, but we don't for that very reason irrespective of which company you choose, we don't think that this price is representative or sustainable price.

One last question I promise just to clarify did I hear earlier that on the ferrovanadium initiative, I heard start-up by roughly January 2021 and the total the total cost of that point of start-up is 8 to 10 million US dollars or was it just the engineering piece?

That's the total cost.

Okay, and how many kilos of ferrovanadium would that be forecast to produce for 8 to 10 million?

Its capacity will be both the feeding out 8000 tons of V2O5. Feeding it’s not that heavy of course.

No, of import I get it. Just wanted to get the metric down. 8000 tons V2O5. Very good, thank you very much I appreciate it.

Next question comes from Nicholas [indiscernible] of Grand Capital. Please go ahead.

Hi, this is Shannon Bask on from Grand Capital. I just wanted to make a comment that earlier someone was on one of the caller's mentioned if you thought about issuing debt to buy back stock. And as someone who in the past as a lender to you guys is now a stock owner given everything that's going on in this call. I can't think of a more crazy thing to do than issue debt to buy back stock and I was a little even you guys kind of just kind of made it sound like something you think about but I just from my from where I sit looking at the variability of the business. The fact that we don't even really understand what the hell we got going on with Glencore still issuing debt to buy back stock would be madness in my opinion. I just want to throw that out there? Thanks.

Though we fully appreciate we didn't talk our silence as acquiescence, so we're not going to do anything to harm the shareholders or any decision we make to be a prudent one so we want to make sure that the company has sufficient liquidity we'll say it again, we're not going to do anything that would be inopportune decision at the time of the company is tight on cash. So we're not looking to do anything too esoteric.

[Operator instructions] We have no further questions at this time. Please proceed.

Thank you, operator and thanks to everyone for joining us today. As we noted Largos third quarter 2019 results press release, financial statements and MD&A can be found within the investor relations section of our website at largoresources.com. That concludes our call. Have a good day everyone.

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