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Good morning, ladies and gentlemen, and welcome to the Largo Resources Third Quarter 2020 Results Conference Call. [Operator Instructions] This call is being recorded on Friday, November 13, 2020. I would now like to turn the conference over to Alex Guthrie. Please go ahead.
Thank you, operator, and welcome, everyone to Largo's Q3 2020 Results Conference Call. Today's call is being recorded, and a replay will be available starting tomorrow within the Investor Relations section of our website at largoresources.com. Our Q3 2020 press release, MD&A, financial statements are all available on the company's website and on SEDAR. Some of the information you will hear during today's discussion will consist of forward-looking statements, including, without limitation, those regarding future business outlook. In addition, non-IFRS financial measures, such as cash operating costs and cash operating costs excluding royalties, total cash costs and revenues per pound sold will also be discussed during this conference call. Actual results discussed could differ materially from those anticipated and risk factors that could affect results are detailed in the company's AIF and other public filings, which are available on SEDAR and the company's website. Further information regarding Largo's use of non-IFRS measures is also available in our Q3 2020 results press release and in the company's latest MD&A, which are available on our website and on SEDAR. Market and industry data contained and incorporated by reference during this call concerning economic and industry trends is based upon good faith estimates of our management or derived from information provided by industry sources. Largo believes that such market and industry data is accurate and the sources from which it has been obtained are reliable. However, we cannot guarantee the accuracy of such information, and we have not independently verified the assumptions upon which projections of future trends are based. Lastly, all financial amounts presented today will be in U.S. dollars, except as noted otherwise. Speaking first will be Largo's President and Chief Executive Officer, Paulo Misk, who will provide highlights from the company's third quarter 2020 results; followed by Largo's CFO, Ernest Cleave, who will then provide some additional detail on the company's Q3 2020 financial performance. Following Ernest, Largo's Director of Sales and Trading, Mr. Paul Vollant, will provide an update on our sales and trading progress as well as the vanadium market. Finally, we'll open the call to questions. I will now turn the call over to Paulo for opening remarks.
Thank you, Alex, and welcome, everyone, for our quarterly update conference call. The health and safety of our workforce continues to remain a top priority for Largo, and our focus on preventive measures early on has enabled the company to continue operations in a safe manner since March 2020. We continue to thank all frontline workers who have helped us keep us safe and healthy during the global COVID-19 pandemic. We would also like to thank our entire workforce and our contractors who are helping to continue Largo's operation in a safe and responsible manner during these uncertain times. Going forward, we will continue to do our part to help stop the spread of COVID-19 and help ease the effects caused by the virus. Q3 2020 was a great quarter for Largo as we continue to advance our investment sales strategy, while at the same time, delivering on the exceeding targets set for the quarter. On Q3 2020, operations performed exceptionally well for the company achieved a new quarterly V2O5 production record of 3,092 tonnes, which was 5% higher than Q3 2019 and 3% higher than the previous record for 3,011 tonnes set in Q4 2019. The company also achieved a new global recovery record, an 84.2% in Q3 2020, representing a 8% increase over 38.1% achieved in Q3 2019 and 4% increase over 80.8% achieved in Q3 2020. This is primarily due to the completion of continuous improvement projects in the plants that focus on recovery levels and is further highlighted by the performance of the kiln and leaching areas in Q3 2020, with record quarterly recovery levels of 92.5% and 99.7% being achieved, respectively. I am very proud of the entire operation team as they continue to demonstrate the ability to effectively meet -- they exceed operation targets, especially during these uncertain times. We are also very pleasant to report that Q3 2020 was a profitable quarter for the company. We recognized revenues of $27.5 million from 22 -- V2O5 equivalent sales of 2,320 tonnes, which represents a 14% increase in revenues over Q3 2019. Additionally, the company achieved net income of $2.6 million in Q3 2020 as compared to a net loss of $6 million in Q3 2019. Our financial position remains solid, exiting the quarter with a net cash position of approximately USD 50.1 million. Our sales strategy for 2020 continue to progress in line with the expectations, highlighted by the V2O5 equivalent sales of 1,062 tonnes in August 2020 and 1,060 tonnes in September 2020. From May to July 2020, the company successfully built the necessary inventories to fit its sales pipeline and meet customer commitments as planned. We are also pleasant to note that our investment sales strategy has proven the potential for the company in Q3 2020, highlighted by the increase of 34% in revenues per pound sold to $5.37 from $4.02 per pound sold in Q3 2019. Largo prides itself on a proven history of community relations, stakeholder engagement and excellent social environmental stewardship. Our people remain our priority, and we truly believe we continue to make a difference economically and socially in our local and host communities. In July, We announced the release of Largo's 2019 sustainability report, highlighted by improved performance metrics and new reporting standards. Our sustainability report is now guided in part the Sustainability Accounts Standards Board and closely follows QRI benchmarks. We believe our approach to sustainability reporting set a new standard for open and transparent communication for vanadium operations worldwide, and we expect to continually improve our sustainability disclosure in the years to come. Our 2019 report can be read and be viewed within the Responsibility section of the company's website. On the exploration front, after delays experienced in early 2020 due to COVID-19 pandemic, the company exploration drilling has ramped up and 14,007 meters of drilling from 80 holes was completed in Q3 2020. Exploration in Q3 2020 focused on the definition drilling at Novo Amparo Norte, Gulçari A Norte and additional drilling at Campbell Pit. To date, the company has drilled 19,465 meters from 109 holes, and our exploration team does not anticipate any further disruption to the overall 2020 exploration plan. The São José and Novo Amparo targets as well as depth extension drilling at Campbell Pit will be the focus of exploration activities in Q4 2020. Additionally, in Q3 2020, we announced that the planned upgrades to the kiln and improvement in the cooler to increase the nameplate capacity to 1,100 tonnes of V2O5 per month are now scheduled for Q1 2021, as a result of the cautionary measures taken by the company in light of the COVID-19 pandemic. Lastly, we continue to advance the company's robust project pipeline with the goal of significantly increase shareholders' value at Largo. All projects such as V2O3 plant implementation, FeV plant implementation and TiO2 Pigment projects are progressing as planned, and we look forward to providing a more detailed update to the market as these progress -- projects progress further. In summary, our liquidity position remains solid headed into the final stretch of 2020, and I am happy to report that we expect to finish this year on a positive note, both operationally and financially. 2020 has presented some challenge for Largo, but I am very proud of the entire team who have been resilient during unprecedented times. Our integrated supply of vanadium from mine to customer remains one of the lowest cost and highest quality in the world. The future looks very bright for Largo as we expect an increase in vanadium consumption from rebar and steel applications due to the new structure -- infrastructure spending and through the development of clean energy applications, both of which are aligned with our goals and contributing to a lower carbon future through the use of vanadium.With that, let me turn the call over to Ernest, who will provide highlights from our Q3 2020 financial performance.
Thank you, Paulo, and thanks to everyone for joining the call today. As Paulo previously mentioned, we are very pleased to report a profitable quarter in Q3 2020, with continued low cash operating costs and record operational results. The company recognized revenues of $27.5 million from V2O5 equivalent sales of 2,320 tonnes in Q3 2020, representing an increase of 14% in revenues over Q3 2019. Revenues per pound sold increased by 34% to $5.37 in Q3 2020, which compares to $4.02 per pound sold in Q3 2019. We are very pleased to highlight the increase in revenues per pound sold, which demonstrates both the strategic and economic benefits associated with Largo's transition to independent commercial sales. The company recorded net income of $2.6 million in Q3 2020, following the recognition of the income tax expense of $0.4 million and deferred income tax expense of $0.4 million. This compares to a net loss of $6 million in Q3 2019, and is mainly due to an increase in revenues and a reduction in operating cost. On the cost front, operating costs decreased by 11% to $21 million in Q3 2020, which compares to $23.7 million in Q3 2019. Q3 2020 operating costs includes direct mine and production costs of $11.4 million, which compares to $16.7 million in Q3 2019. The reduction in direct mine and production costs is mainly attributable to the decrease in V2O5 equivalent sold in Q3 2020. The company continues to achieve low unit costs at the Maracás Menchen Mine. And in Q3 2020, cash operating costs, excluding royalties, were $3.14 per pound sold. 9-month 2020 cash operating costs, excluding royalties, were $2.70 per pound sold. Additionally, the company's total cash costs were $3.69 per pound sold in Q3 2020, and the 9-month 2020 total cash costs were $3.29. We are very pleased to report that the company has lowered both its cash operating costs, excluding royalties, and total cash cost guidance for 2020 to reflect our positive year-to-date performance and the company's expectations for the balance of the year. We now expect to finish the year in the range of $2.60 to $2.80 per pound sold for cash operating costs, excluding royalties, and $3.20 to $3.40 per pound sold for total cash cost. Despite having successfully completed a significant transition and commercial strategy and navigating the challenges presented by the global pandemic, Largo remains very well positioned, and we expect to conclude the year with a strong financial position on the back of record operational results. We, again, would like to thank all frontline workers as well as our entire workforce, including our contractors and suppliers for their continued commitment in ensuring Largo continues normal business operations during these unprecedented times. With that, I will now turn the call over to Paul Vollant, who will provide an update on the company's sales and trading progress as well as the vanadium market. Following Paul's update, we will open the call to questions.
Thanks, Ernest, and thanks, everyone, for joining the call today. Q3 2020 marked Largo's first full quarter of independent sales, and the company delivered both VPURE and VPURE+ products as well as ferrovanadium powered by VPURE to customers globally. We are very pleased to report the company is progressing in line with its sales strategy for 2020, highlighted by V2O5 equivalent sales of 1,062 tonnes in August and 1,060 tonnes in September. As Paulo mentioned, from May to July, the company successfully built the necessary inventories to fill its sales pipeline and meet customer commitments as planned. The company's total V2O5 equivalent sales in Q3 2020 were 2,320 tonnes. And in the first 9 months of 2020, sales were 6,508 tonnes. As a result of Largo's new commercial independence and sales flexibility, the company increased its sales in China during Q3 2020 to take advantage of higher prices and greater overall demand. This further highlights the positive effect of the company's commercial strategy on its reputation, visibility and financial performance. In Q3 2020, some deliveries to Asia increased their times due to logistical constraints related to COVID-19 pandemic, and we continue to actively manage this process. Creating value through the control of our product from mine to end user is a key priority for Largo, and we are confident in delivering on our 2020 sales guidance of 9,500 to 10,000 tonnes of V2O5. For Q3 2020, the average price per pound of V2O5 in Europe was $5.33 compared to $7.16 in the Q3 of 2019. During Q3 2020, the average price per pound of V2O5 in Europe increased by 1%, ending the period with an average price of approximately $5.35 compared with approximately $5.30 at the end of Q2. In Q3, the average price per pound of V2O5 in China was approximately $5.96 on a CIF equivalent basis. China continues to be the driver of global vanadium demand from increased infrastructure spending and the development of green technology applications. According to Vanitec, Chinese vanadium consumption increased by approximately 22% in the first half of 2020 compared to the same period in 2019. This is even more amazing considering that the country was on lockdown for a couple of months during that period. Looking ahead, Largo expects additional vanadium demand growth as a result of recently announced stimulus packages and a focus on carbon footprint reduction globally. These significant long-term trends are forecast to increase the consumption of vanadium in rebar, high-quality steel and high-tech applications as well as through new vanadium redox flow battery deployments around the world. Largo also continues to prioritize increasing its vanadium customer portfolio. The completion of our vanadium trioxide plant in Q3 2021 will warrant an increase in high-purity sales. Our focus remains on capturing this high-value sales when demand returns to normalized levels as well as additional sales opportunities as Largo is globally recognized as a leading reliable, independent and integrated supplier of vanadium products. With that, we will now open the call for questions.
[Operator Instructions] Your first question comes from Heiko Ihle at H.C. Wainright.
The increase that was seen in Q3 2020 compared with Q3 2019, this is from your release, is largely due to a decrease in produced pounds of V2O5 and the incurrence of distribution costs in Q3 2020. How much are you actually still incurring in distribution costs? And where do you see that trending in Q4 and next year?
Heiko, thank you very much for your questions. I will forward this question to Ernest and Paul, if you want.
Sure. So Heiko, the -- in terms of distribution costs year-to-date, we've been including them all in period costs. So you can take them for granted that it's been pretty even. But in a given quarter, we're looking at about just shy of $1 million in distribution costs. So you could use that as -- based on the number of tonnes moved in that period. But that's roughly representative of what we're doing. It was $928,000 in the quarter.
Got it. Okay. And then just thinking ahead a little bit, I mean, you're focusing your 2020 drilling on São José and Novo Amparo and the depth extension drilling at the Campbell Pit. But can you just maybe provide us a little bit of color on what you plan to do in 2021, which I may add, starts in a 1.5 month or 45 days, especially since you now have more cash flow just -- the monetary handcuff that you previously had has been removed, which is obviously a great thing.
Heiko, We are focused on increasing our reserves and resources, mainly the reserves, and that's why we have been focused on the Novo Amparo Norte, and also the Maracás North. We have been a very good successful results on those deposits and also, we are reviewing the mining plan and the reserves on Campbell. We don't see too much -- it's not a big expense for that over project and none of the 2 new targets and the continuing operation. This deposit's close -- very close to the surface, so we don't expect to have a high -- a big expansion with the staff.
The next question comes from Andrew Wong at RBC Capital Markets.
So Largo's realized price looks to be basically about the same as the market benchmark prices. And I recall part of the plan for post-Glencore was to get a lift on the price by as much as $3 per pound. Obviously, this year, with the aerospace industry struggling, that's had a negative impact. But aside from that, what else is impacting the realized price? And when can we expect Largo to receive a premium that's closer to that $3 per pound? Or is that something that we -- maybe it's changing going forward?
Thank you very much for your question. When we see the aerospace market this year, it has been hardly impacted by the COVID. And naturally, the markets are weak this year and we expect to be weak next year as well. So we can see the premium that we're going to set the contracts, we didn't close yet. But we see that, that should have some reduction. So that's the way we see the market. But we need to have in mind, overall consumption of vanadium mainly to China is increasing. Paul said that 22% higher in first half of this year compared to the same period of last year. And the projection we have from the experts in China, in second half, it should be 11% higher over first half. So the consumption of vanadium globally sale is increasing. And we expect to see all the economic levels to come back in Europe and U.S. So overall situation of the vanadium consumption, it's very promising. I might expect good things for 2021, not for aerospace, of course, but for other industry, including chemical and the -- also the IFB, which is -- it's growing and have a very good future that we as expected. Any comments, Paul, you would like to complement?
Yes. Thank you, Paulo. 100% in line with what we just said. I would just like to complement on the aerospace industry has been hit very hard, and we do not think that volumes will come back very soon, but only maybe in the medium term. However, we are very focused on growing our market share in that business. And regarding the units moved today -- because premium market has been more difficult, we've moved quite a bit of volume into the steel industry, and we know that steel industry is actually buying product at a discount on a yearly basis. The achievement of Largo to be able to achieve a final price in line with the market price really shows how Largo's product quality is valued in the market, so we're selling it higher than our competitors. And also, it shows the incremental value that our sales flexibility has brought to the company, being able to tap into markets with higher demand and higher prices during the quarter.
Okay. So does that mean going forward we should expect Largo's price to be similar to the market price until aerospace recovers?
I think we are doing many actions to increase our market share in the aerospace, but also in other premium markets. So it is still our expectation to outperform the benchmark price.
Okay. And then the price in China is close to $7 per pound. But as you said, the CIF equivalent for Largo is $5.90. So that $1 per pound cost to get the product into China, is that a normal cost that we should expect going forward? Or was there any logistical constraints that you mentioned? In Largo's products, even the base product that Largo sells, if I remember correctly, is a higher purity product than other vanadium products. So do you get a premium for that?
Andrew, on your last question, yes, we do get a premium, and customers globally are willing to pay more for -- to get Largo materials. The cost to bring material into China, so the difference between the CIF price and the domestic price that you mentioned is actually not an absolute number of $1. It is mainly driven by a 5% import tax and a 13% VAT tax in China. So total 18% of taxes. There are a few additional costs related to exchange of currency from Chinese renminbi to U.S. dollar and some import costs, but these are quite minimal. So the main chunk of that cost is actually a 18% total tax cost.
The next question comes from Lee Cooperman of Omega Family Office.
I think you've talked around this, but I congratulate you guys. You've done a very good job in controlling costs and bringing your cost of operation down. So it seems to be the whole story revolves around the price of the commodity. We had that spike up a couple of years ago to $30 a pound. We're now fluctuating around $5 a pound. Do you guys have any strong view, one way or another, about the price outlook, number one? Number two, I may have the wrong company, but didn't you guys talk a lot about titanium dioxide as a new product? And I don't see that mentioned at all in the release or on any comments on the call. But what's the story there? Two questions.
Thank you very much, Lee Cooperman. Ernest, would you like to answer the first question, and I can answer the second one, please?
Well, price outlook is -- it's an open question. We obviously, on the business, have been bullish on price, but we're hoping for something between $6.50 and $7.50 per pound for next year for standard grade vanadium. But I mean, it's a very broad view of the market, but we do see it improving. We see that prices started improving this week already. But that's all I have on price.
What's happened to your expert? I don't know if you have a relationship anymore, but Terry Perle, he's supposed to be the genius in this market. What is he saying, you know?
I don't know where Terry is, but we have our own genius. So we have Paul Vollant. I don't know, Paul, if you have a view on next year?
Yes. I'll just complement what Ernest just said. Our view is that prices will recover from where we are today. $6.50 to $7.50 is still -- is very much achievable. We were very optimistic about China. We mentioned the increase of 22% if you compare the first half of this year compared to the first half of the previous year. Accounting for the COVID situation in the first half of this year, the spot market in Europe has been extremely active over the past week. So there's a clear sentiment in my mind that the market is close to a bottom now, and we're hopeful for next year.
Again, before the second question is answered, let me just say, again, you guys deserve a nice shout out for what you've done to your cost structure and your operations. Excellent. You just got to get some prices. So the question on titanium dioxide?
Yes. Yes. Regarding the titanium project, Lee, we are doing all the work internally that we planned. We -- together with all the exploration work, we are evaluating the titanium deposit and the titanium reserve in our deposits as well. So a lot of work has been done, and we should issue a technical report in the -- by the end of the first quarter next year. So we're going to incorporate the titanium in our reserves. But in the same time, we have a pilot plant running for location process, running at site, continuously producing ilmenite. It has been proven and there are a lot of information we got from that, that will help us in engineering that we are concluding as well. At the same time, we set a kiln co-pilot plant to produce the pigment. That's the most challenged step of this project, because it's not a commodity only. Titanium pigment, it's a product that needs to be tested in the customers, in the painting producers. And I say painting producers because that's the main market that we're going to focus in the first step. So we have already produced the pigment products. We are doing all the analysis and assessment. Also, we start testing in some distributors and producers in Brazil. So we're going to have a full report, a full analysis of what's the potential, what exactly the market we're going to achieve, price, volumes. And then will it be essential for our sales strategy and how we will approach the business when we disclose all the details. So we are working hard and we are very confident that these projects will be one of the -- the second support for Largo results. So don't misunderstanding the not talking on all the details, but we just are preparing very consciously that everything is going to present and propose in the future for investors.
The next question comes from Serena Rocha at Morgan Stanley.
I wanted to ask a couple of questions about China. First, if you -- is there a way to estimate what the longer delivery times to Asia might have -- how that might have impacted your sales for the quarter? And then on China specifically, can you comment on what are you seeing there in recent weeks? Paul mentioned the encouraging year-over-year increase in the first half. But in light of some news about rebar quality there, could there be a kind of like a resurgence of the vanadium-specific demand? So curious if you're seeing anything on the ground there?
Thank you, Serena. And I just will start answering with a small information, and then I'll let Paul do some additional comments. What -- the contract we had before with Glencore, we sell ex-works, I mean our -- we just delivered, it's past our gates, it's done and we recognize the sale. Now we are selling to the final customers, and we have sold a lot of material to China in this period. So it takes about 2.5 months to reach material there. And we recognize sales only when they reach our customers. So that's the reason, we have this period to fulfill the pipeline to the customers. And in the third quarter, the impact is July mainly. July, we got sales, almost 200 tonnes only. It was 198 tonnes. But we can see that August and September, we have produced more than our nameplate capacity. So the impact was limited to July when you look at the Q3. But we are very confident -- and the results of the sales and everything that we are doing, it's fantastic. I'm really happy with the sales team and Paul Vollant and Francesco. Paul, would you like to give further comments regarding this, please?
Sure. On your first question of longer delivery time impact for Largo, certainly, COVID has had some impact, some delays. I think we've been able, through very close relationship and continuous information to our customers, to manage this impact. It has been a worry from time to time, but I'm happy to say that all of our commitments have been fulfilled in the third quarter regarding shipment time. And regarding your second question, recent weeks, it's hard to speculate. And I know that there has been an issue in China with a bridge that collapsed in the north of China. And I think some people were looking at potentially the issue coming from the quality of steel. So we don't want to speculate too much, especially on the bad news. But it could certainly revive some discussion on rebars and the quality of steel. But my vision is that higher quality steel is something -- it's a long-term trend. It's going to happen in China and also in other countries in the world for -- it's more efficient. It's -- the carbon footprint is much lower with high-quality steel. And you know countries like China have done tremendous headways towards increasing the consumption of vanadium. But if you look at the statistics, China is just a little bit above half of what, for example, the U.S. consume in terms of tonnes of vanadium per tonne of steel. So there's still quite a long way to go for China. And you have a lot of opportunities. Countries like India are, again, about half of what China consumes. So I think higher quality steel is a big trend globally, and there is still a lot of room for growth in the developing markets. So I think demand for vanadium in steel is going to continue to increase tremendously around the world.
The next question comes from Jim Young at West Family Investment.
A couple of questions here for you. Number one, in China, where we've been talking about the sales, can you give us a sense as to what percentage of sales in the third quarter were into China? And given the lag, it sounds like there's a delay of the revenue recognition, so you have 2.5 months. So what percentage of sales are you expecting in the fourth quarter? And then lastly, are sales solely in China? Or are you also having opportunities to sell into Japan, Korea and other parts in Asia? That's the first question.
Thank you, Jim. Please, Paul, I think you are a good answer to Jim, please.
Jim, percentage of sales to China in Q3 was roughly 40%. It's probably higher than what we expect long term. And again, we were able to profit from an opportunity of a much higher demand and higher prices during that quarter. So I believe we took full advantage of that. The public records of imports into China in September showed that China imported a total of 1,300 tonnes of vanadium products, out of which 580 tonnes came from Brazil, so from us. So I think Largo has really been able to profit from this opportunity. But again, I think it's going to be less than that in the long run. And you mentioned Japan and Korea. They are both important market for us. Korea, especially, where we sell more than 15% of our production into Korea. I think it's a reasonable number to expect going forward. Japan is a smaller market for Largo. And the consumption of steel has been quite impacted over the last few months. So I think that Japan long term would be around 5% and 10% of our sales.
Okay. And then Paul, you mentioned the -- that China had a -- was a -- imported 1,300 tonnes, of which 580 were from Brazil. But as I look on Page 25 of your corporate presentation, it appears that their exports are less than the imports that is for China. And that, as I recall that when you've seen the Chinese be a net importer, that has historically signaled a -- and you've actually realized a significant increase in prices for vanadium in the -- over the next, like, say, 3 to 6 months or so. Is that -- and so what I'm kind of wondering is, do you think that this is something that is going to continue to occur again in the cycle? Or how is this like a little bit maybe different than it had been in prior years?
Jim, I think, I agree with you. I think that the supply deficit in China is structural, more than a short-term thing. So I think that China will continue to import vanadium products for the medium to long run. Is this going to spark a big price rise? It's difficult to see. But definitely, the scale of consumption in China, currently consuming about 60% of the vanadium units globally definitely has the potential to move the needle on a global basis. So let's see what comes. But definitely, we have great hopes about Chinese consumption.
Okay. And Paul, maybe you could address this question here about my understanding that the contractual terms for 2021 are generally set around this time of the year when there's historically been your -- the conferences that are probably done virtually this time. So my question is, how are the contractual negotiations going for 2021? And any insights that you can share as to how the customers are thinking about the prices and volumes in 2021 would be very helpful.
Yes, Jim, you pointed out, right now is the most important time of the year for the steel industry with regards to vanadium. We are in direct discussion with all the large steel mills in Europe, in the U.S., in Brazil, negotiating long-term contract for 2021. I think it's too early to speak about a general trend or the outcome, because really 90% of the contracts are still under negotiation. But generally, the consumption is expected to be close to 2020 levels. There is probably a bit of lack of visibility right now with the COVID situation. So we are seeing buyers asking for more flexibility. But in general, we're seeing volumes in Europe, in the U.S., fairly similar. Brazil, by the way, is a bit of an outlier. Brazil is doing extremely well, and we think that consumption of vanadium products in the country will go up significantly next year.
Okay. And Paul, can you give us a sense as to when do you think that these contracts will be finalized? Are you looking at by early December, late December or so? Or can you just give us a sense there?
In terms of timing, each region has a bit of a different timing. The U.S., I think we will have a very clear picture, let's say, by the end of next week. Europe will probably take until the end of November. And Asia typically comes to market a bit later. So I would think Korea would probably be by the end of this month and Japan maybe at December at some point. So let's say, in the next 4 weeks, we'll have a better picture.
Okay. Great. And my last question is pertained a little more of a strategic question, but there's a lot of discussion in the markets about the vanadium neutral battery and the like. And the question is -- here is, do you think this makes sense for companies that maybe like yourself to have a vertical integration at this point in time given where we are in the cycle and the opportunities that are ahead of themselves for the renewable energy?
Paulo, do you want me to take that?
Yes. Yes. I thought Paul is going to take that answer. Jim, we can see the -- all the green energy and storage energy, that's being more relevant each time. I can see many companies doing a lot of commitments regarding carbon emission reduction. Countries are aiming to have a better impact regarding environmental. And when you talk about environmental or sustainability, the VRFB is unbeatable in terms of storage. We -- when we do compete with lithium, for example, which has been largely used, VRFB can last for more than 25 years. And by the end, the electrolytes, you can recycle it and reuse it. Lithium, after 6, 7 years becomes a scrap. You need to dispose in some place, which is not sustainable at all. So when the world realize that the VRFB is much safer. And in certain application, such as many cycles per day or long duration, VRFB is the most competitive battery for the grid. So our intention, when you talk about the vanadium being applied in the VRFB, it's not to replace the lithium. Lithium is a great battery, it will have an important role in the world, but in some niche, VRFB, it's more competitive. And that's just a matter of time. And we believe that the companies are changing the way they are approaching this sector. We had in the past a lot of start-ups with a little bit weak financial support, no supply is guaranteed. And the marketing that they have been doing, I think, needs a little bit more strategic. So that's our belief. We are excited with this sector. It doesn't mean that's going to be great and big amount in short term, but I can see a very good future for VRFB because the world needs to be more sustainable. And Largo will support that initiative, because, bear in mind, with our values and the way we do the business.
The next question comes from Gordon Lawson at Paradigm Capital.
Ore mined in the quarter was relatively high. Is that a run rate you expect to maintain in the coming quarters?
Ernest, can you take that please?
Well, Paulo, I think you could talk about ore mined. I'm not really sure that I'm the best person for that question.
Yes, I didn't understand the question. Gordon, let me know what exactly? Sorry.
So nearly 290,000 tonnes of ore was mined this quarter versus 250,000 in the previous and 200,000 in Q1. I mean, obviously, COVID's had an effect on that, but comparing numbers to last year, it looks like you're getting the run rate back up. So is this something we can expect to be maintained in the coming quarters?
In fact -- sorry, I didn't understand the question. But let me answer right now, now I understood. Our mining operation is running steadily, and the performance is well. One thing that it's amazing how it's no surprise at all with the deposit and the mining operation. We expect to increase our mining production as we are increasing our production. In January 2021, we will upgrade the kiln and improve the cooler efficiency, which will allow us -- and, say, that's going to increase our nameplate play capacity to 1,100 tonnes a month, which we are already reducing. So we will be able to even more improve our production and, of course, it requires more ore. But it's -- all the operations that have mined -- been mined, all the grade and the quality of the ore is amazingly good. It's -- I'm easy to say that's the best deposit in operation in the world. So we will be -- we are prepared to increase the volume there.
Okay. And back to sales strategy. It sounds like there was a lot of spot sales to take advantage of the premium pricing in China. Could you talk about the duration of your sales contracts in terms of like the longer-term contracted sales versus spot sales?
I will -- if Paul would like to do some additional. But basically, the prime contract for steel industry is 1-year contract. We renew every year. And the spot sales, that's the beauty to have our independent payers, because we can get the opportunity to sell all products where the price is higher. Like China in Q3, it's not very clear, that situation. So the spot market, it's -- there's no contract period. It's sell lot by lot. And that's the way the steel industry works. Aerospace industries are a little bit longer. It depends on case by case and chemical industry as well. So as that's the overview. Do you have any other information, Paul?
Thanks, Paulo. Just to complement here. I think that for our first year of commercial independence, we were really in a position to deliver product to the steel industry around June or July this year. That impacted our ability to conclude too many long-term contracts in 2020. And actually, it was a blessing in disguise because we -- it meant that we had more material available for spot and that enabled us to capture more opportunities in China. Going forward, I think our contractual volumes will probably be higher than in 2020. But still, I think it's very important for Largo to keep a decent portion of our volumes available for spot precisely to capture these opportunities from time to time.
Yes. It's a strategy that works well in uranium industry and others. So I was just curious how -- what your thoughts on that. And one more, if I may. Your tax rates have been relatively low. Are you expecting tax rates to increase in the coming quarters or years?
No, we've got beneficial tax rates locked in for the long term. So we're not seeing anything there in terms of changes.
Next question comes from Andrew Wong at RBC Capital Markets.
So now that Largo has built up the pipeline on sales after the Glencore contract expiration, what are your expectations for market purchases and product acquisition costs going forward?
Paul, could you take that, please?
Thank you, Andrew. Sure, Andrew. As you rightly mentioned, our pipeline is still now. Our previous purchases in the market were really here to help us bridge this gap at the start of our commercial independence. I do not think that the purchasing material in the market is a, let's say, ongoing regular strategy for Largo. I guess we will keep an eye on opportunities. But I do not think that it is something Largo will engage in on a regular basis on a strategic basis. So it probably be more opportunistic and from time to time.
Okay. That's great. And then just one last one for me, probably also for -- on the market. So with steel production going up a lot in China, are you seeing a pickup in slag vanadium production?
Thanks, Andrew. Very good question. There has been some increase in slag production. I think the general increase in steel production is one of the factor. The bigger factor actually is the current iron ore prices. Most of the slag producers in China are in central regions in China, that when prices of iron ore are high, have an opportunity to buy from high-cost producers in Central China that have high vanadium bearing in the iron ore. That is what is happening today. If prices of iron ore, international prices go down, iron ore from imports from Brazil, Australia will become more competitive. And using this iron ore steel slag producers will reduce the output of vanadium naturally. My last point on this one is that supply from slag producers is very inelastic. The vanadium economics is tiny compared to the steel economics for these particular producers. So there is no incentive for them to produce more steel in order to get vanadium. So I think we're close to full capacity right now with higher iron ore prices and high steel production. And we could expect some lower from them when these 2 trends changes.
Okay. Sorry. Did you just say that they were at capacity for the slag production? Like is there a maximum capacity that they reach and they just can't produce any more? How does that work?
I'm looking at capacity from the point of view that they are using almost exclusively local domestic iron ore with high vanadium bearings.
Okay. And then so there's some sort of limit on that, I'm assuming?
Yes, that is there's still production, basically.
Ladies and gentlemen, that concludes today's question-and-answer session. Now I'll turn the call back over to Alex Guthrie for closing comments.
Thank you, operator, and thanks to everyone for joining us today. As I noted earlier, Largo's Q3 2020 results press release, financial statements and MD&A can be found within the Investor Relations section of our website at largoresources.com. That concludes our call. Stay safe and healthy and have a great day.
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