Royalties from the Maracás Menchen mine totalled $3.3m for the year ended 31 December 2021, compared to $0.7m in 2020. The $2.7m increase is in part due to the one-off price adjustment of $1.3m in 2020 which arose on the termination of the offtake agreement between Largo and Glencore in 2020.
In addition, the Group’s 2021 royalties benefited from the underlying vanadium price increasing from $5.58/lbs in 2020 to $9.15/lbs in 2021. Excluding the effect of the one-off price adjustment in 2020, royalty income increased by 56% in the year.
The increase in the underlying vanadium price achieved in 2021 is reflective of both the general increase experienced by the market and of the performance of Largo’s sales and marketing function in targeting a greater portion of sales to high purity vanadium markets as well as the battery market. The latter has the potential to add premiums to the benchmark V2O5 price.
Following the termination of the offtake agreement, the majority of Largo’s product is now sold on a CFR basis rather than mine gate terms. Accordingly, applicable freight and transport charges are permitted deductions to the revenue subject to the Group’s royalty. There are also additional costs incurred in refining the final product bound for the battery market although these appear to be compensated by higher margins. Overall allowable deductions increased from 12% in 2020 to 15% in 2021.
While production for 2021 was 13% lower than 2020 at 10.3Kt due to planned capacity upgrade works and unexpected heavy rainfall in Q4 2021, sales of V2O5 equivalent increased by 11% to meet the low end of Largo’s revised guidance.
Construction of the ilmenite concentration plant continues as planned with completion of production targeted for Q2 2023. Commissioning of the TiO2 plant, however, has been delayed until the first half of 2025 due to delays associated with the project’s land acquisition.