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Lenders approve Largo Resources' debt restructuring plan

Published: 15:50 15 Jun 2015 EDT

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Vanadium is becoming essential for the production of high strength low alloy (HSLA) steel as aircraft and automotive manufacturers address demand for lighter and tougher materials

Brazil’s Development Bank ‘BNDES’ and a consortium of commercial lenders have approved Largo Resources’ (CVE:LGO) (OTCMKTS:LGORF) restructuring of its main construction debt and export credit facilities for the Maracas Menchen Mine in Bahia, Brazil.

The restructuring package allows Largo to defer its debt amortization while also extending the maturities of its construction debt and export credit loans for the project.

"This is a major milestone for Largo and the Maracas Menchen Mine. The completed restructuring of our Facilities, coupled with the successful completion of our recent CDN$75.2 million equity financing, provides us with a strong financial foundation as we continue our ongoing ramp-up at the Plant, and we believe further de-risks the Company," said Largo’s President and CEO, Mark Smith.

Largo will get an additional one-year grace period on the amortization repayment schedules for the loans, a two-year extension of maturity for its export credit loans and a three-year extension of maturity for the BNDES Loan for the US dollar component.

"We would like to sincerely thank our lenders for their continued support of Largo and the Maracas Menchen Mine. We believe that their willingness to engage in negotiations and conclude this restructuring is a strong indication of their belief in the Project's ability to achieve its intended design capacity within the timeframe set out by the Company, and also its ability to generate cash-flow," said Smith.

Having completed the financial restructuring, Largo has addressed the effects of the lower market price for vanadium during the first months of 2015.

There are no changes to the Brazilian reais (R$) component of the BNDES loan, which is denominated in reais (R$) even while some 63% or CDN$111,497 (R$257,676) of the facility is indexed to the U.S. dollar while the remaining 37% is not indexed.

Under the terms Largo will incur an increase in the guarantee fees payable to the commercial banks in respect of the BNDES loan from 3.3% to 3.85% per year as well as the payment of a flat structuring fee amounting to 1.5% of the aggregate sum of the loans.

The successful effort to restructure debt and increase available resources add to the encouraging performance at the Mine, which Largo is aiming to develop to phase 1 capacity by the third quarter.

The mine started production last August. The Toronto-based miner is expecting 2015 production to come in at 17 million pounds of vanadium pentoxide at very competitive costs.

Largo has already achieved vanadium pentoxide production costs for $3.91/lb., placing the company in the lowest cost quartile of all primary vanadium production in the world. Largo is targeting a drop to US$3.21 per pound by the end of this year.

Looking out to 2016, the company has the option to complete a $32 million expansion, which would raise capacity by some 50 percent and make Maracas the largest and lowest cost vanadium mine in production.

Largo started production of vanadium ore in March of 2014 and shipments began in early September. It is the first vanadium project in the Americas and its target is to reach 11,700 tons at full capacity.

The Maracas Menchen Mine is the highest grade vanadium deposit in the world with grades of 1.3% - twice as high as the majority of known vanadium deposits.

Largo has access to one of the best and highest grade vanadium deposits in the world with grades of 1.3% - twice as high as the majority of known vanadium deposits.

Largo has very favorable prospects for 2015 thanks to its own performance and production ramp up capabilities and thanks to improving market conditions for vanadium and its high quality deposit, marked by a low silica content, which makes it easier to process.

Vanadium is becoming essential for the production of high strength low alloy (HSLA) steel as aircraft and automotive manufacturers address demand for lighter and tougher materials, which contribute to reducing fuel consumption and reduce emissions.

China is another important driver of vanadium demand because of its demand for HSLA for the construction of buildings, better able to withstand the frequent and often devastating earthquakes in the country.

The growing demand for efficient batteries will also have a favorable impact on vanadium demand thanks to such innovations in technology as the vanadium-redox battery, which shall make it possible to store energy produced from wind turbines.

Apart from increased demand from the battery industry, western economic sanctions could cut off supplies of Russian vanadium, sending prices higher and faster than expected.

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