Largo Inc. is pleased to announce details regarding Largo Physical Vanadium Corp., currently a holding company, and a proposed qualifying transaction under the policies of the TSX Venture Exchange with Column Capital Corp., a capital company start-up, the terms of which are set out in a non-binding letter of intent dated February 1, 2022.
Upon completion of the proposed qualifying transaction and associated regulatory approvals and subsequent financing, it is expected that the resulting entity will be named “Largo Physical Vanadium Corp.” and will become a publicly traded physical vanadium holding company that will purchase and hold physical vanadium, among other things, for use in Largo’s VCHARGE batteries to power the global energy transition.
Upon completion of the proposed qualifying transaction (see details below), LPV’s goal will be to provide a secure, exchange-traded investment alternative for investors interested in direct exposure to vanadium. Vanadium is a new economy material with constructive ESG alignment through its use in electrolyte solution in long-life VRFBs. VRFBs are rechargeable flow batteries that use vanadium ions in the electrolyte to store chemical potential energy. With its completely unique chemical characteristics, vanadium electrolyte is 100% reusable without degradation, allowing unlimited use in long-term energy storage systems without the risk of thermal runaway in its aqueous form. electrolyte.
Paulo Misk, President and CEO of Largo, said“LPV represents a substantial opportunity to advance Largo’s long-duration energy storage strategy, which could make the adoption of vanadium redox flow batteries more attractive to potential customers by separating ownership from physical vanadium and removing the cost of vanadium to the battery customer, which is by far the largest cost component of these batteries.We believe this value proposition has the potential to drive future demand for our VCHARGE products and to create a mutually beneficial relationship between Largo, LPV and potential VRFB customers.
He continued: “The demand for long-duration energy storage is growing rapidly as governments and large organizations push for net-zero goals. According to the Long Duration Energy Storage Council, long-duration energy storage will need to be scaled up to ~400x current levels at 85-140 TWh by 2040 and 10% of all generated electricity expected to be stored in long-term energy at some point.I VRFBs have become a preferred long-term renewable energy storage system for safe and continuous energy storage over a life cycle of more than 20 years without any degradation. Driven by investor interest in direct investment exposure to physical vanadium, LPV is expected to provide an opportunity to drive demand for long-life VRFB systems and offer a low-cost solution to potential VRFB customers through the pursuit of a vanadium electrolyte rental model, minimizing CAPEX requirements.”
He concluded : “Finally, we believe that LPV presents an opportunity for Largo to expand beyond its proposed Wilmington production capacity of 1.4 GWh per year through LPV’s planned acquisition of additional vanadium units on the open market for potential use in VCHARGE batteries. The strength of our global vanadium brand will be key as we seek to complete the work required to form LPV and develop its focus during what we believe is the start of a bull market for vanadium.
J. Alberto Arias, Co-Chair of the Board of Directors, said: “LPV, together with the completion of the proposed qualifying transaction, represents an important strategic step for Largo, as it innovatively combines two concepts widely accepted in the commodity markets: i) the concept of a publicly traded instrument holding a physical raw material and ii) the concept of “metal leasing” for industrial applications to reduce the input costs of raw materials that do not degrade during use. While the success of this strategy will also depend on, among other things, sufficient investor interest and Largo’s ability to market and sell its VRFBs, we believe that the two concepts combined and applied for the first time to VRFBs would help to solve the historical challenge of how to secure the supply of vanadium at an affordable and stable price. Ownership of vanadium units by LPV will create the potential to (i) significantly reduce the total cost of Largo’s VRFBs for its clients and insulate them from periods of potential vanadium price volatility, (ii) provide investors with a new vehicle to invest in physical vanadium, which we expect to be largely stored in Largo’s VRFBs, and iii) allow Largo to monetize the vanadium inventory it intended to keep on its balance sheet and lease to its VRFB customers.
Mr. Arias concluded “We are excited about the opportunity this strategy presents to offer an attractive cost proposition to our potential VRFB customers by utilizing the unique characteristics of vanadium and Largo’s leading position as a low-cost primary producer of vanadium in the Americas (Brazil) as well as its unique position as the only vertically integrated VRFB manufacturer in the United States.
Terms of the Proposed Qualifying Transaction
On February 1, 2022, LPV entered into the Letter of Intent with the CPC. The letter of intent outlines the terms and conditions under which LPV and CPC expect to effect a business combination that will result in CPC acquiring all of the issued and outstanding securities of LPV in exchange for of the CPC, which will result in a reversal redemption of LPV by the CPC. Pursuant to the terms of the Letter of Intent, LPV and CPC will negotiate a definitive agreement and other transaction documents, incorporating the principal terms of the Letter of Intent. Upon completion of the proposed Qualifying Transaction, CPC will have acquired 100% ownership of LPV and LPV’s business will become the business of the entity resulting from the proposed Qualifying Transaction. The final structure of the proposed Qualifying Transaction is subject to satisfactory tax, corporate and securities law advice from LPV and CPC. There can be no assurance that the proposed Eligible Transaction will be completed or will be completed on the terms set forth in the Letter of Intent.
Completion of the proposed Qualifying Transaction is subject to a number of conditions, including, but not limited to, completion of Largo’s Contribution in Kind (defined below), receipt of regulatory approvals and applicable stock market conditions and the execution of the definitive agreement and related transaction documents. For a complete description of the conditions for completion of the proposed qualifying transaction, please see CPC’s press release dated February 2, 2022.
Largo Contribution in kind
As a condition to the closing of the proposed qualifying transaction, Largo will exchange vanadium equivalent commodities to LPV in exchange for shares of LPV common stock, on terms and conditions to be determined in the context of the market (the “In-Kind Contribution of Largo”). The size of Largo’s in-kind contribution and the applicable price will be based on the availability of hardware and will take into consideration other market factors at that time.
In addition, LPV will enter into an agreement with Largo for a right of first refusal on any uncommitted vanadium equivalent commercial product from January through October of any Largo fiscal year.