Largo Resources (OTCPK:LGORF) has announced it reached an agreement with its lenders to extend the grace period by approximately 8 months. Instead of having to make a first repayment this month, the Brazilian Development Bank has granted the company an extension, meaning the firs repayment is now scheduled for April 2015. This will reduce the cash outflow for Largo by $2.1M per month, and this cash preservation will be very important during the ramp up of the Maracas Vanadium project.
I have always liked Largo Resources (and now it's up 50% since my first article in January, I like it even more), but the one negative remark I had was the working capital deficit and the potential financing pressure on the company. This 8 month grace period could be all what's needed to make sure the Maracas project reaches a cash flow positive stadium before having to start repaying the loan of the development bank. The repayment schedule remains the same, which means that Largo will have to make slightly larger monthly payments from April next year on.
This doesn't change my investment thesis at all, but it does remove an important uncertainty about the company's financial flexibilities. The Maracas project will be a relatively large and low-cost producer of Vanadium, but the only issue I had with the company was the fact that it might not meet its debt repayment obligations. That issue has now been solved, and I'm convinced Largo Resources will surprise everyone over the next 12-18 years.
Disclosure: The author is long LGORF. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
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