Largo Inc.

Unaudited Condensed Interim Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2024 and 2023

(Expressed in thousands / 000's of U.S. dollars)

Table of Contents

Largo Inc.

Expressed in thousands / 000's of U.S. dollars

Unaudited Condensed Interim Consolidated Statements of Financial Position

Largo Inc.

Expressed in thousands / 000's of U.S. dollars and shares (except per share information)

Unaudited Condensed Interim Consolidated Statements of Income (Loss)
and Comprehensive Income (Loss)

Largo Inc.

Expressed in thousands / 000's of U.S. dollars and shares

Unaudited Condensed Interim Consolidated Statements of Changes in Equity

Largo Inc.

Expressed in thousands / 000's of U.S. dollars

Unaudited Condensed Interim Consolidated Statements of Cash Flows

1) Nature of operations and liquidity

Largo Inc. ("the Company") is a producer and supplier of high-quality vanadium products, which are sourced from one of the world's highest-grade vanadium deposits at the Company's Maracás Menchen Mine located in Brazil. The Company is also focused on the ramp up of its ilmenite concentrate plant and is undertaking a strategic evaluation of its U.S.-based clean energy business, including its vanadium redox flow battery technology ("VRFB"). Refer to note 6. While the Company's Maracás Menchen Mine is producing vanadium products, future changes in market conditions and feasibility estimates could result in the Company's mineral resources not being economically recoverable.

The Company is a corporation governed by the Business Corporations Act (Ontario) and domiciled in Canada whose shares are listed on the Toronto Stock Exchange ("TSX") and on the Nasdaq Stock Market ("Nasdaq"). The head office, principal address and records office of the Company are located at 100 King Street West, Suite 1600, Toronto, Ontario, Canada M5X 1G5.

The Company has experienced declining operating results and cash flows over the course of the last year as a result of declining vanadium prices and increased costs. Since December 31, 2023, vanadium prices have declined by over 10%, which has a significant impact on the Company's forecasts. The Company has implemented changes to address underlying operating issues and has recently announced a number of initiatives at its Maracás Menchen Mine that the Company believes will reduce its operating costs and are required in order to generate positive cash flows from operating activities at current vanadium prices. Based on the information currently available and prevailing market conditions, these measures are expected to result in the Company's Maracás Menchen Mine continuing to operate at normal levels.

The Company has recently secured two short-term working capital debt facilities for up to $8,000 and $2,000 (note 10) and two inventory financing facilities for up to $10,000 each (note 10) and continues to actively pursue additional financing options to increase its liquidity and capital resources. In addition, the Company is committed to finalizing a proposed transaction with Stryten Energy LLC for the Company's clean energy business (note 6). There can be no assurance that the Company will be successful in achieving additional funding on terms acceptable to the Company, or at all, or be able to successfully implement strategic alternatives.

If the Company does not achieve expected vanadium and ilmenite sales volumes and prices or does not continue to operate at expected levels, the Company may have to implement alternative plans to ensure that it will have sufficient liquidity for the twelve-month period ending June 30, 2025 from continuing operations. These alternatives may impact future operating and financial performance.

These unaudited condensed interim consolidated financial statements have been prepared on a going concern basis. The going concern basis of presentation assumes the Company will continue in operation for the foreseeable future and can realize its assets and discharge its liabilities in the normal course of business.

2) Statement of compliance

These unaudited condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard ("IAS") 34, Interim Financial Reporting.

The unaudited condensed interim consolidated financial statements were approved by the Board of Directors of the Company on August 7, 2024. 

3) Basis of preparation, material accounting policies, and future accounting changes

The basis of presentation, and accounting policies and methods of their application in these unaudited condensed interim consolidated financial statements, including comparatives, are consistent with those used in the Company's audited annual consolidated financial statements for the year ended December 31, 2023 and should be read in conjunction with those statements.

These unaudited condensed interim consolidated financial statements are presented in thousands of U.S. dollars, unless otherwise noted. References to the symbol "C$" or "CAD" mean the Canadian dollar, references to the symbol "EUR" mean the Euro and references to the symbol "R$" or "BRL" mean the Brazilian real, the official currency of Brazil.

a) Critical judgements and estimation uncertainties

The preparation of unaudited condensed interim consolidated financial statements requires the Company's management to make judgments, estimates and assumptions about the carrying amount of its assets and liabilities that are not readily apparent from other sources. These estimates and assumptions are disclosed in note 3(d) of the Company's audited annual consolidated financial statements for the year ended December 31, 2023. There have been no significant changes to the areas of estimation and judgment during the three and six months ended June 30, 2024.

b) Material accounting policies

These unaudited condensed interim consolidated financial statements, including comparatives, have been prepared following the same accounting policies and methods of computation as the audited annual consolidated financial statements for the year ended December 31, 2023, with the exception of an additional accounting policy as included below.

Amendments to IAS 1, Presentation of Financial Statements, IAS 21, The Effects of Changes in Foreign Exchange Rates and IFRS 16, Leases, became effective on January 1, 2024 with no impact on the Company's unaudited condensed interim consolidated financial statements.

Assets and liabilities held for sale and discontinued operations

Non-current assets and disposal groups are classified as held for sale if their carrying value will be recovered principally through a sale transaction rather than through continuing use. The criteria for held for sale classification is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Actions required to complete the sale should indicate that it is unlikely that significant changes to the sale will be made or that the decision to sell will be withdrawn. Management must be committed to the plan to sell the asset or disposal group and the sale expected to be completed within one year from the date of the classification.

Non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs of disposal ("FVLCD"). If the FVLCD is lower than the carrying amount, an impairment loss is recognized in the consolidated statements of income (loss) and comprehensive income (loss). Non-current assets are not depreciated once classified as held for sale and assets and liabilities classified as held for sale are presented separately as current items in the consolidated statements of financial position. 

4) Amounts receivable

5) Inventory

During the three and six months ended June 30, 2024, the Company recognized net realizable value write-downs of $7,029 and $11,214 for vanadium finished products (three and six months ended June 30, 2023 - $683 and $683), net realizable value write-downs of $229 and $158 for ilmenite finished products (three and six months ended June 30, 2023 - $nil and $nil) and net realizable value write-downs of $342 and $308 for warehouse materials (three and six months ended June 30, 2023 - $nil and $nil).

6) Assets and liabilities held for sale 

On March 12, 2024, the Company and Stryten Energy LLC ("Stryten") (together the "Parties") signed a non- binding letter of intent to establish a new venture, owned equally by each of the Parties, that would combine the Company's Largo Clean Energy ("LCE") business with Stryten's vanadium redox flow battery business. Discussions have advanced significantly during the three months ended June 30, 2024 following extensive due diligence and the Parties are committed to concluding the proposed transaction with LCE contributing certain assets, as set out below.

At June 30, 2024, the Company performed an assessment in accordance with IFRS 5, Non-current Assets Held for Sale and Discontinued Operations, and concluded that at that date, certain non-current assets and liabilities contained within the clean energy segment (refer to note 16) met the criteria to be classified as held for sale. This includes items of other intangible assets (intellectual property), mine properties, plant and equipment ("MPPE") and the lease liability related to the leased premises. Significant judgment was applied in considering the progress in finalizing the transaction agreements and the items pending resolution. It was concluded that at June 30, 2024, the proposed transaction was considered to be highly probable of being concluded within one year.

As part of this process, items of mine properties, plant and equipment with a net book value of $119 were written off. Upon classification as held for sale, the assets were remeasured to the lower of their carrying amount and FVLCD, with no impairment charges required to be recognized.

The liabilities held for sale balance of $1,249 relates to the total lease liability (current and non-current). 

7) Other intangible assets

At June 30, 2024, the remaining estimated useful life of capitalized software costs was 3.5 years (December 31, 2023 - 4 years).

8) Mine properties, plant and equipment

At June 30, 2024 and December 31, 2023, the Company's economic interest in the Maracás Menchen Mine totaled 99.94%. The remaining 0.06% economic interest is held by Companhia Baiana de Pesquisa Mineral ("CBPM") owned by the state of Bahia. CBPM retains a 3% net smelter royalty ("NSR") in the Maracás Menchen Mine. The property is also subject to a royalty of 2% on certain operating costs under the Brazilian Mining Act. Under a separate agreement, a third party receives a 2% NSR in the Maracás Menchen Mine. 

Of the additions noted above, $19,977 related to the Mine Properties segment (year ended December 31, 2023 − $47,519) and $58 related to Largo Clean Energy (year ended December 31, 2023 − $85). 

9) Accounts payable and accrued liabilities

10) Debt

Credit facilities 

In October 2022, the Company secured an additional debt facility of $20,000 with a bank in Brazil. Following an amendment finalized in June 2023, the facility is for three years, with the principal due for repayment at maturity. In addition to a fee of 0.80%, accrued interest at a rate of 8.51% p.a. is to be paid every six months.

In January 2023, and amended in June 2023, the Company secured a three-year debt facility of $10,000, bearing interest at 8.51% p.a. and an initial fee of 0.80%. The principal is due for repayment at maturity, with interest payments due semi-annually.

In September 2023, the Company secured a new $15,000 debt facility with a bank in Brazil and repaid in full an existing $15,000 facility. This new facility is for three years, with four equal principal repayments due semi- annually after a grace period of 540 days. Accrued interest at a rate of 8.75% p.a. is to be paid every six months.

In October 2023, the Company secured a three-year debt facility of $20,000, bearing interest at 8.95% p.a. Interest payments are due quarterly with 50% of the principal to be repaid in October 2025 and 50% to be repaid in October 2026. This new facility was used to repay in full an existing $20,000 facility. 

In December 2023, the Company secured a two-year debt facility of $10,000, with the principal due for repayment at maturity. In addition to a fee of 0.85%, accrued interest at a rate of 10.45% p.a. is to be paid at maturity.

In May 2024, the Company secured a working capital debt facility with a bank in Brazil for a total limit of $8,000. Drawdowns on the facility are repayable in 90 days together with accrued interest at a rate of 8.25% p.a., with renewals subject to approval by the bank. On May 10, 2024, the Company received $7,813 from this facility. In May 2024, a further working capital debt facility with a term of 60 days was secured with another bank in Brazil for a total limit of $2,000 and an interest rate of 8.65% p.a. The Company received $1,914 from this facility in May 2024 and it was repaid in full in July 2024.

On June 25, 2024, the Company signed an inventory financing agreement for up to $10,000. Under the terms of this facility, which has a term of 12 months for the receipt of funds and a further four months for the repayment of amounts received, the Company will use its vanadium finished products inventory to secure drawdowns of up to $10,000 for a maximum period of 100 days. Amounts repaid will include a commission fee of 1%, interest at a rate of the one month U.S. Secured Overnight Financing Rate ("SOFR") plus 3.0% and other direct costs. The Company began drawing down on this facility in July 2024.

On July 5, 2024, the Company signed an additional inventory financing agreement for up to $10,000. Under the terms of this facility, which has a term of 15 months, the Company will use its vanadium finished products inventory to secure drawdowns of up to $10,000 for a maximum period of 90 days. Amounts repaid will include a commission fee of 1%, interest costs and other direct costs. The Company began drawing down on this facility in July 2024.

11) Issued capital

a) Authorized

Unlimited common shares without par value.

b) Issued

12) Equity reserves

During the three and six months ended June 30, 2024, the Company recognized a net share-based payment expense related to the vesting and forfeiture of stock options and RSUs granted to the Company's directors, officers, employees and consultants of $408 (three and six months ended June 30, 2023 - expense recovery of $929). The total share-based payment amount was charged to operations. 

1. Value includes amounts relating to all outstanding grants.

a) RSUs

During the year ended December 31, 2023, the Company granted 230 RSUs to officers and employees of the Company. These RSUs vest over time, with one-third vesting during each of the years 2024, 2025 and 2026.

b) Stock options

The remaining weighted average contractual life of options outstanding at June 30, 2024 was 2.8 years (December 31, 2023 - 3.1 years).

c) Warrants

13) Earnings (loss) per share

The total number of shares issuable from options, warrants and RSUs that are excluded from the computation of diluted earnings (loss) per share because their effect would be anti-dilutive was 1,199 for the three and six months ended June 30, 2024 (three and six months ended June 30, 2023 - 1,636).  

14) Taxes

a) Tax recovery (expense)

b) Changes in deferred tax assets and liabilities 

15) Related party transactions

In accordance with IAS 24, key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company directly or indirectly, including any directors (executive and non-executive) of the Company. Their remuneration was as follows:

Refer to note 17 for additional commitments with management.

16) Segmented disclosure

The Company has six operating segments: sales & trading, mine properties, corporate, exploration and evaluation properties ("E&E properties") (included as part of inter-segment transactions & other), clean energy and Largo Physical Vanadium. Corporate includes the corporate team that provides administrative, technical, financial and other support to all of the Company's business units, as well as being part of the Company's sales structure.

1. Amounts relating to Largo Titânio Ltda. and Largo Tech Ltda., which are not part of an operating segment.

2. Amount relating to E&E properties.

3. Inter-segment transaction elimination of $48,626 partially offset by Largo Titânio Ltda. and Largo Tech Ltda. total assets of $5,321 and E&E properties total assets of $2.

4. Inter-segment transaction elimination of $48,217 partially offset by Largo Titânio Ltda. and Largo Tech Ltda. total liabilities of $204 and E&E properties total liabilities of $0. 

1. Amounts relating to Largo Titânio Ltda. and Largo Tech Ltda., which are not part of an operating segment.

2. Amount relating to E&E properties.

3. Inter-segment transaction elimination of $(82,231) partially offset by Largo Titânio Ltda. and Largo Tech Ltda. total assets of $4,890 and E&E properties total assets of $2.

4. Inter-segment transaction elimination of $(85,301) partially offset by Largo Titânio Ltda. and Largo Tech Ltda. total liabilities of $119.