Largo Resources (CVE:LGO) (OTCMKTS:LGORF), a junior Canadian miner focused on Brazil, had its "strong buy" recommendation retained at Byron Capital Markets despite a one-month delay to the erection of the main kiln at the Maracas Vanadium Project.
"None of our basic assumptions have been impacted by this issue," Byron's analyst Jon Hykawy, wrote in a note to clients emailed yesterday.
On Aug. 21, the Toronto, Ontario-based company said four support rollers for the main kiln at its flagship Maracas project in Brazil are needed to be recast. "Management has stated that there are no other issues that would cause any additional delays. First production is still expected in mid-Q1/14, as ramping up a vanadium kiln is a matter of a few weeks, not months," Hykawy affirmed.
Byron also retained its target price on the stock at 70 cents, and pointed out that some macroeconomic impacts for the project are improving. "With the exception of a brief and very well remembered period from roughly February to October 2008, when [vanadium] prices reached US$18.00/lb, prices have largely remained within a dollar of US$6.00/lb. Even in the depths of a commodity downturn, V2O5 pricing is holding its ground, and we find that very encouraging."
Even more encouraging, Hykawy said, is the recent commodity boom cycle that has taught end-users the value of secured supplies, with China seemingly "buying everything in sight" and political issues in South Africa forcing the hand of steelmakers.
Also of note, the company pointed out that the Brazilian unit of currency, the Real, is currently trading at around $2.43 to the Canadian dollar, in contrast to the financial projections made in the Preliminary Economic Assessment published in January, which were calculated on an exchange of $2, meaning the company is benefiting from "a 20 per cent improvement in terms of numbers".
"This will obviously have a very positive impact on the margins reaped by Largo, as it will, to large measure, mean that operating costs have dropped significantly," the Byron analyst concluded. "Inflation in Brazil is currently at rates of roughly 6%, far less severe than the decline in exchange."
Largo Resources closed at 20 Canadian cents in Toronto yesterday, giving it a market value of C$179.5 million. The stock has rallied 5.3 percent so far this year.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.