Largo Resources (LGO-V) acquired its Brazilian Maracas vanadium project in November 2006 and by September 2008 had taken the resource from 10 million tonnes to 23 million tonnes and completed a feasibility study. Between 2005 and 2008, the company’s market cap surged from $10 million to $250 million.
But then the crash hit. Financing dried up, Largo Resources’ market cap plunged to $20 million, and the company was forced to raise money by diluting equity. Mark Brennan, the company’s president and chief executive, promised himself he’d figure out a better way.
“We decided to find a project that wasn’t too big but could fund us so that we would never have to depend on the markets again,” he explains in a telephone interview.
What he and his geological team found was Currais Novos, a tungsten tailings project that will start producing at the end of July and at today’s metal prices should make the company more than US$1 million a month for the next four years.
“We went in and drilled 166 augur holes on two piles of tungsten tailings on the property and found decent grades,” he says. “What we found is we could put up a processing facility very cheaply and process this material very economically.”
The tungsten tailings piles at Currais Novos were formed from the processing of ore from the Barra Verde and Boca de Laje tungsten mines, 180 km southwest of Natal in the state of Rio Grande do Norte.
Barra Verde, the oldest, southernmost and larger of the two piles, spans an area of 250,000 square metres. The pile ranges in thickness from 30 metres at the centre to 1 metre along the edge and averages 7 metres.
The Boca de Laje tailings pile is the northernmost and covers an area of 80,000 square metres and is the smaller of the two, roughly a third the size in terms of area. The Boca de Laje pile ranges in thickness from 15 metres near the centre of the pile to 1.5 metres along the edge and averages 9.4 metres.
Largo announced the findings of a preliminary economic assessment in mid-December 2010. Based on an estimated initial capital investment of US$6.1 million (including the purchase price of the resource) and the milling of 4.27 million tonnes of tailings material at a grade of 0.115% tungsten oxide (WO3), the project has a discounted payback of less than one year and is expected to generate net revenues of US$29.8 million over its estimated production life of four years on a pre-tax basis (based on a tungsten price of US$260 per mtu).
This results in a pre-tax IRR of 163% and a NPV of US$15.2 million at a discount rate of 10% per year. Total WO3 concentrate produced over the projected life of the operation is estimated to be 4.9 million pounds or 221,000 mtu.
And Largo believes there is potential to significantly increase its tungsten resource in the region.
“The objective here is not just to do the tails,” Brennan continues. “We think we can expand the tails but we also want to bring this district back to the tungsten producing district it once was.”
Before commodity prices dropped out of the sky in the early 1980s, this area of Brazil was a known tungsten producing area where Union Carbide and Anglo American (AAUK-Q, AAL-L) together produced about 8% of the global supply of tungsten outside China. According to Brennan, there were about 50 small mines producing tungsten, most of them within 50 km of each other and of Largo’s two tungsten tailing piles.
Brennan says he has already signed letters of intent to acquire four other properties in the district and plans to go underground at some of the former producing mines.
Largo’s facility will be capable of processing a minimum of 3,288 tonnes per day of reclaimed tailings. The plant will consist of gravity concentration, gravity tabling upgrade, concentrate cleaning, roasting and magnetic separation to produce the final concentrate.
The two tailings deposits have indicated resources of 3.46 million tonnes grading 0.12% WO3 and 1.74% fluorine for 7.2 million pounds of WO3. Inferred resources stand at 810,000 tonnes grading 0.093% WO3 and 1.44% fluorine containing 1.3 million pounds of WO3. The resource estimate was based on a WO3 cutoff grade of 0.06% tungsten oxide.
As for Maracas, detailed engineering work should be completed by April 2012 and Largo plans to start selling vanadium from the project before the end of the first quarter of 2013. (The plant is expected to be commissioned in Jan-Feb. 2013.)
On June 2, Largo signed an agreement to acquire the surface rights for Maracas from a private company that will enable it to start work and build its processing facility, roads and processing-related infrastructure.
The agreement guarantees that the company can submit an application for the Installation License, which will provide it with final approval to construct and develop on the property. Brennan says he expects the licence will be filed “imminently” and that approval should be received within the company’s projected deadlines.
Largo is acquiring the land rights through a series of agreements that allow it to access the Maracas property for mining, research and processing activities.
In exchange for purchasing the land and royalty rights, Largo will make a cash payment of R$275,000 (US$173,515.59) to Banco Economico S.A. pursuant to an option agreement, a cash payment of R$5.25 million (US$3.31 million) to be paid in twelve monthly installments to Economico Agro Pastoril e industrial pursuant to a leasing agreement, and a payment of US$9 million paid in installments over forty months for royalties, mining easements and other uses to Banco Economico pursuant to a mining easement.
Maracas is a 27,000 hectare property about 813 km northeast of Brasilia, the country’s capital, and 250 km southwest of Salvador, the capital of Bahia State. The vanadium deposit is hosted within the Jacare River mafic-ultramafic intrusion.
Reserves stand at 13.1 million tonnes grading 1.34% vanadium pentoxide (V205), including 8.7 million tonnes of 1.94% vanadium pentoxide.
“If you look at any other producing mine the average grade is 0.5% vanadium so our 13 million tonnes is two and a half times better than anyone else’s and in the 8.7 million tonnes is four times better,” Brennan says.
Measured and indicated resources total 23.2 million tonnes at an average grade of 1.27% vanadium pentoxide and 0.75 gram per tonne PGMs for contained PGMs of 208,000 ounces.
Largo started a drill program at Maracas a month ago with the target of doubling the resource and investigating the deposit’s PGM potential.
In addition to Maracas and Currais Novos, Largo owns the Campo Alegre de Lourdes project, a large, undeveloped high-grade vanadium, iron and titanium deposit. A non-compliant historical resource on Campo Alegre pegs the resource at 133 million tonnes grading 50% iron and 0.75% vanadium.
“This is probably the biggest deposit of vanadium in the world that I know of,” Brennan says. “What’s very interesting here is that it is a massive magnetite, just like Maracas, but it has 50% iron and is a very big geological target.”
Largo has completed a ground magnetic survey and other geological work and is now wrapping up metallurgical testing on the feasibility of separating the ore’s various constituents. Testing will finish at the end of June with results to follow.
“What we’re trying to do is see if this could work as a standalone iron ore project,” Brennan explains.
“We believe we can take this to about a billion and a half tonnes and if that’s the case this could be a very, very interesting iron ore project” he adds. “We’re sitting on tenterhooks waiting for these results to come out.”
If the tests are positive Largo plans to spend about $2.5 million over the next twelve months on a drill program.
At presstime in Toronto, Largo was trading at 41¢ per share within a 52-week range of 15¢ (July 12 2010) and 58¢ per share (Jan. 31 2011). The company has about 404.71 million shares, fully diluted.