Good day, and thank you for standing by. Welcome to Largo's second quarter 2022 webcast and conference call. Today's call is being recorded. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. I would now like to hand the conference over to your speaker today, Alex Guthrie, Senior Manager of External Relations. Please go ahead.
Good morning, everyone, and thanks for joining our second quarter earnings conference call and webcast. On the call today is Paulo Misk, Largo's President and CEO, Ernest Cleave, Largo's Chief Financial Officer, and Paul Vollant, Largo's VP of Commercial. To accompany the call today, we've uploaded a supplemental webcast presentation, which is available on our website at largoinc.com. Our Q2 financial statements, related MD&A, and most recent AIF are also all available on the website as well as on SEDAR and on EDGAR. Before continuing the call, I would like to remind you that some of the information you'll hear during today's discussion will consist of forward-looking statements, including, without limitation, those regarding future business outlook. Please refer to Slide 2 for the full description of our cautionary notes.
The agenda for our call this morning is as follows. Paulo will provide an update on the company's second quarter progress, followed by Ernest, who will provide an overview of Largo's Q2 financial results. Paul will close the call with an update on the company's sales and trading progress and on the vanadium market. Following this, we will then open the call for questions. We note that participants should restrict their questions to two and then re-queue if there are additional questions to allow others the opportunity to participate. With that, I'll hand the call over to Paulo.
Thank you, Alex, and thanks for everyone for joining our call today. I'd like to start by providing a brief summary of our second quarter results as it relates to our two pillar business strategy. Let's begin with the profitable vanadium pillar. Our team has worked hard in the face of several challenges at the start of the year. I am pleased to report that our production and sales performance improved in the second quarter. On the production side, we produced 3,084 tons of V2O5 equivalent in Q2, which is a notable increase over Q1 following an improvement in operation stability as well as the re-establishment of intermediate inventories. Sales also improved this quarter with 3,291 tons of V2O5 equivalent sold. Q2 was a great quarter for vanadium prices and the company's strong financial performance during this quarter reflect this.
Revenues were up 56% this quarter. The company achieved net income of $18 million on basic earnings per share of $0.28. However, due to the operational impact experienced to date and expected continuation of global inflationary pressures, the company has revised its production and cash cost guidance for 2022. The V2O5 equivalent production guidance is now 11,000-12,000 tons, down from 11,600-12,400 tons. Cash operating costs excluding royalties guidance has increased to $4.10-$4.50 per pound sold from $3.90-$4.30. We continue to actively address this challenge through additional operational improvements at our facility with an increased focus on cost management. As we noted in our Q1 update, construction of the company's ilmenite concentration plant began in April.
This project is a part of our previously announced TiO2 pigment project outlined in our latest tech report, which can be found on SEDAR and on our website. An important feature of this project is that the TiO2 content is expected to be sourced from the vanadium ore from our existing operations, meaning no new mining required. Although we are delaying CapEx spend on this project, we expect to begin the commissioning of the ilmenite concentration plant in Q2 of next year as planned. Let's shift gears to the second strategic pillar of our business and discuss progress made at Largo Clean Energy. In late July, LCE achieved ISO 9001 certification of its quality management system, and our teams continue to pursue the certification of our VCHARGE system.
As previously announced in October last year, LCE was selected to receive $4.2 million in funding from the Department of Energy to scale up US-based manufacturing of flow batteries and long-duration energy storage systems. This award was subject to the negotiation, and this negotiation was concluded in early July. LCE's total DOE budget is $6 million, for which DOE will provide funding of $4.2 million, and we expect to complete DOE project over the next three years. LCE's Enel contract remains a priority focus for us, and we made notable progress this quarter in the face of continued supply chain obstacles. These obstacles have had a significant impact on the project delivery timeline, and we now expect the VCHARGE battery to be commissioned in mid-February 2023.
We are also pleased to have announced the recent signing of a non-binding MoU with Ansaldo Green Tech to negotiate the establishment of a joint venture for the purpose of the commercial deployment of our VCHARGE SB in Europe, Africa, and the Middle East power generation market. Given the non-binding nature of this announcement, I will note that we are limited in what we can provide in terms of details, as there can be no assurance that future negotiation will lead to the execution of a definitive agreement. If the potential JV negotiation successful, it could address identified needs of the European energy sector, which is seeing extreme growth of the renewable energy integration. I'd like to provide further information on Ansaldo. Established in 1953, Ansaldo Energia is a leading international player in the power generation industry.
It brings an integrated model embracing turnkey plants and turbo machinery, including the gas turbines, steam turbines, generators, and micro turbines. Ansaldo is headquartered in Genoa, Italy, has over 4,000 employees globally and recognized approximately EUR 1.5 billion in revenues in 2021. Its subsidiary, Ansaldo Green Tech, operates in the field of renewable energy with a view towards innovation and with the goal of developing, manufacturing, installing, and servicing products for the energy transition for traditional source of energy to renewable forms of energy. Finally, I'd like to touch on our fourth annual sustainability report, which was published in July. I'm proud to see the progress we have made thus far. This is reflected in higher ESG rating in several important areas. Our sustainability journey continues, and we have other improvements planned on many sustainability-related performance measures and priorities going forward.
Included in this progress is the release of our first TCFD report in the coming months. We are moving forward on a new and exciting path of Largo and by continuing to focus on sustainability and dedicating ourselves to the very best practice in our industry. I am confident that we are on track to become a respected leader and contributor to the planet's low-carbon future sustainable. Let me stop there and turn things over to Ernest for a review of our financial results.
Thanks, Paulo, and welcome to everyone on the call today. Slide 8 provides a summary of our second quarter financial results. Q2 was a solid financial quarter for the company, and we reported net income of $18 million or basic earnings of $0.28 per share. As a result of stronger vanadium prices, we generated approximately $84 million in revenues from sales of 3,291 tons of V2O5 equivalent in Q2, or $11.69 per pound sold. This represents a 56% increase in revenues over the comparative quarter last year. Cash operating costs, excluding royalties, were $4.23 per pound in Q2 2022, compared with $3.39 for Q1 last year.
As we have noted in previous quarters, we continue to face inflationary pressures similar to the wider market, and during the first half of the year, experienced cost increases for most of our critical consumables. As Paulo mentioned, we've updated our cash cost guidance to reflect the inflationary impacts expected for the remainder of the year. Our cash operating cost, excluding royalties guidance, is now in the range of $4.10-$4.50 per pound. With that being said, we continue to actively review and evaluate opportunities for cost reduction and cash preservation, including the review of current contracts and the renegotiating of certain supply agreements.
Paulo briefly touched on this earlier, but we've also adjusted a portion of our 2022 CapEx guidance, including the lowering of the ilmenite concentration plant CapEx to $19 million-$21 million, and that's from $29 million-$30 million previously. The company's TiO2 processing plant CapEx from $2 million-$3 million. That's from $9 million-$10 million previously. At quarter end, we had a cash balance of approximately $53 million and restricted cash of approximately $23 million, for total cash of $76 million. Working capital in the second quarter was largely impacted by increased levels of vanadium inventory and accounts receivable balances. Given the uncertainties surrounding vanadium price movements and potential purchases of vanadium under the LPV structure towards the end of the year, it is difficult to estimate year-end cash.
Assuming the $9 sales price for the remainder of the year, the current CapEx guidance and low vanadium purchases via LPV, net cash movement is expected to be flat up to the end of the year. Every $1 change per pound in the average vanadium price for the remainder of the year would impact EBITDA and the ultimate cash flows by approximately $10 million. Such estimates also take into account the updated cost guidance, sales guidance, and a Brazilian to US dollar exchange rate that averages approximately 5-to-1 for fiscal 2022. Let me stop there and pass the call over to Paul Vollant.
Thanks, Ernest, and thanks everyone for joining today. We had a very strong second quarter of sales with good volumes, approximately 3,291 tons of V2O5 equivalents sold, as well as high prices. The average benchmark price per pound of V2O5 in Europe was $11.08, an increase of 3% from the average of $10.72 seen in Q1 2022, and an increase of 35% from the average of $8.19 seen in Q2 2021. However, consumption of vanadium in the steel sector has been slowing down recently, and we actively monitor the situation as it is by far the largest driver of volume in our industry. We're likely seeing the effect of inflation and slower economic growth, which has impacted vanadium prices recently.
The average price benchmark for V2O5 in Europe was $8 per pound of V2O5 as of August 2022. On a positive note, we've seen strong increase in demand from the smaller aerospace, chemical, and energy sector. These markets drive lower volumes, but are very important for Largo as they require high purity products that we are ideally placed to supply. These markets are a key focus to drive important diversification and extra profitability for the company in the coming quarters. Lastly, I know you're all patiently waiting for an update on LPV, but I'm afraid we can only reiterate that it remains subject to standard TSX Venture Exchange regulatory approval, and we look forward to providing an update on LPV status once the approval process is complete. I'll stop there and turn it over to the operator for questions from the analysts.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. As a reminder, we ask that you please limit yourself to two questions and then re-queue. Again, press star one to ask a question. We'll pause just a moment to allow everyone an opportunity to signal for questions. We will go first to Heiko Ihle of H.C. Wainwright & Co.
Hey there. Thanks for taking my questions. Thinking a bit longer term here, can you give some catalysts for the clean energy division? I mean, in our view, the primary catalysts obviously are, you know, first VCHARGE battery system, which is gonna happen next quarter. I mean, just longer term, can you maybe just provide a 24-month roadmap for the division, if you'd be so kind? Hello?
Hello. Sorry. Could you repeat the, your question again, please?
Sure. With the clean energy division, I mean, there is a number of, you know, shorter term catalysts. There's VCHARGE, the battery system that's gonna come in in the fourth quarter. Just longer term, can you provide a bit of a roadmap for the next 24 months for that area of your business, please? Catalysts that you expect to see.
Yes. Yeah. Thank you, Heiko. We at LCE are focused right now to deliver Enel. We're gonna complete the commissioning on February of next year. We are also focused to establish this JV that we intend to establish with Ansaldo in Italy. I think it will be a very important initiative in our strategic plan for LCE. Also we still continues to get opportunities in U.S. There is very good opportunities. We are not expecting something for next year, but for 2024. All those plans, including some initiatives to reduce the cost of our battery, improve the efficiency, we are working on the second generation the VCHARGE battery.
All those measures will ensure we'll be able to have a very competitive a battery and also a very good solution for the energy storage systems.
That's helpful. You revised the ilmenite concentration plant project downward to $19 million-$21 million, so down essentially $10 million. I mean, that's just delays in permitting timing. I don't know how locked in is pricing there. I mean, with inflation, should we expect the absolute amount of money that you're gonna spend to get this thing up and running to be higher? And if so, by how much? And building on all of that, is there a potential, you know, bottleneck or delay in getting all the equipment?
No. In fact, we postponed some of the reimbursement, Heiko. The implementation are in line with our plan. Startup will be in Q2 next year. We have financing of our purchase and the main equipment. So the CapEx expected is updated. We don't expect any inflationary impact on the ilmenite project plan. So it's in line what we are planning, and we are very confident that it will be a very important step making our mining business more competitive, improve results, and really optimize our mining business.
Perfect. That's all for now. I'll get back in queue. Thank you.
Thank you, Heiko.
We'll go to our next question from Lee Cooperman with Omega Family Office.
Thank you very much. Just a couple of questions, you know, revolving around the same issue. How much, if any, stock have you bought back on your Normal Course Issuer Bid? Why are you buying it? The reason I ask that, you know, given the recent adverse trends in your business, why are you buying back stock? Secondly, what is your view of normalized earnings in the existing business lines, and what is the profit potential from Largo Clean Energy and the titanium dioxide business? You know, in a sense, what I'm saying, putting everything together, what is your realistic level goal, not a forecast, but a goal for, say, 2025 earnings?
Yeah. Let me.
Yeah. Let me attempt to try and answer some of that. In terms of the number of shares bought back, Lee, we've repurchased about 805,000 shares. We've been purchasing every day since the last kind of two days of June. All told, that's about $5.5 million. Again, that reflects our view and, you know, the share price is not reflective of what we think the underlying fundamentals are. We candidly will be reviewing that, you know, going forward as we look at cash. And we will manage that, you know, somewhat fluidly. You know, if we feel that, you know, the vanadium outlook, you know, starts going very negatively in a direction, we will just curtail those purchases.
As to a long-term EBITDA expectation, you know, we've always felt that, you know, $100 million of EBITDA or maybe more depending on premiums in the market, but just on the long-term price of vanadium is a reasonable expectation, you know, $100-$120. Could be much more when times are really in our favor as you've seen in the past. On the titanium business, you know, as it's described in the NI 43-101, there's some very substantial EBITDA that are elucidated in that document. You know, we are reviewing a bunch of strategic opportunities. I'd hate to put a number on that right now. Same with the battery business.
It's so fluid. You know, from my perspective, we're building from that base of $100 million and, you know, everything on top of that. You know, if we can get to a couple of $100 million in the future, that would be wonderful. I don't have that in exactitude, and I think it'd probably be wrong of me to kinda lead people down a path. That's just off the top of my head what I have, Lee.
Thank you very much. Appreciate it. Good luck.
All right. Thanks, Lee.
Our next question comes from Andrew Wong with RBC Capital Markets.
Hi. Thanks for taking my questions. I dialed in a bit late, so apologies if anything I'm asking has already been asked. Can you talk about what you're seeing in the high purity market, and if there are any improvements there with more airplanes flying now? Could we see some of the high purity higher price, like higher premiums benefit on the price realizations going forward?
Yes. Hi, Andrew. High purity market has been very strong for us in the first half of this year. Definitely we're seeing a strong increase in demand compared to the lows of 2019 and 2020. Vanitec has recently published a statistics where they see.
Q1 2022 demand from aerospace industry more than 30% above Q1 2021. That's reflecting that. As you know, Largo is in a unique position as one of the only producer approved by all the aerospace companies to supply high purity products, and we are definitely benefiting from that. I mentioned in my speech earlier that this is a key focus for Largo, and we see that as a real benefit to help us diversify our revenue and also increase with extra profitability from the premium. We will see where premium go, but right now the focus for us is to grab larger volume in this sector.
Yes, it's truly a bright spot for us in this year.
Okay, that's great. Just maybe on operations. I think obviously, you know, the guidance was lowered on production because of some of the earlier year issues. You know, going forward, how much confidence do you have in the stated 1,100-ton per month run rate? And what kind of actions are you looking to implement just to make sure that the facilities run at that level sustainably going forward? Thanks.
Thank you for your question. We are very confident. You know, we have taken all the measures to solve the problem that we faced this year. You know, I'm talking about this, the heavy rainfalls, the beginning of the year, end of last year and beginning of this year. We have all the measures to prevent any future heavy rains. Also, the refractory at the kiln, we face some problems. We have done all the corrective maintenance and replacement beginning of July. We don't expect any more stoppage on the kiln or any other area of the plant. We are pretty much confident that we keep running stably and achieve the production in the guidance. It will be pretty much good.
Okay. Thanks, Paulo.
Thank you.
As a reminder, it is star one if you do have a question at this time. We will go next to Gordon Lawson with Paradigm Capital.
Hey, good afternoon, everyone. Congratulations on another excellent quarter. Two of my questions have already answered, so I'm just gonna stick with if you can comment on the vanadium trioxide production in the quarter. Are you able to break out those numbers or perhaps suggest a premium we could add to our baseline price assumptions?
Yeah. Thank you very much. We start producing V2O3, you know, in the beginning of the year. We spent some time this first half with approving the quality and certifying with the customers. Our production, you know, we are increasing it according to the orders we are receiving. We are very excited with how the aerospace industry is reacting right now. I will ask Paul Vollant to supplement his expectations on V2O3 just to give a sense of how it will be going forward in terms of sales. Please, Paul.
Yes. Thanks, Paulo. Hi, Gordon. Yeah. V2O3 is very much linked to all of our high purity markets, whether it's aerospace, chemical or even in energy storage. Adding the production of V2O3 to our portfolio is really essential for us to drive more volumes in this high purity market and these high purity markets drive premium. Just in terms of price, the way you should look at it is that V2O3 is priced on a V2O5 equivalent. There is about 21% more V2O5, more V, sorry, in V2O5 than in V2O3. Essentially one ton of V2O3 is sold at a 21% premium to a ton of V2O5. Again, you know, you get less volume for V2O3 than V2O5. Roughly it's equivalent and there's no real arbitrage there.
Okay. Do you get a benefit for the conversion costs?
Sorry, conversion to what?
Our cost to.
Well, I guess.
Our cost to produce V2O3 or V2O5 is the same. There's no difference. Both come from the same source of raw material. We don't produce V2O3 from the V2O5, but from AMV. There's no additional cost to produce V2O3.
Oh, okay. Gotcha. Thank you very much. That's it for me.
Yep.
You're welcome.
With no other questions in queue, I would now like to turn the call over to Alex Guthrie for closing remarks.
Great, thanks. Thanks for joining everyone, and that concludes our question and answer session and the quarterly investor call. Until then, take care. Bye now.