SOME Interesting comments from largos conference call on Tuesday. Time for Glencore to possibly look elsewhere ?
Question-and-Answer Session.
Your first question comes from Heiko Ihle from H. C. Wainwright.
Heiko Ihle
Congratulations on a strong year and delivering on your promises here, I think the change in share price today, if nothing else, certainly, reflects on the good job you have done. Your Glencore off-take contract expires in May 2020. I mean, this may sound pretty far away, but philosophically, I mean, it is 14 months. Philosophically, can you just walk us through your thoughts on the renewal and changes of terms that you think you'd see given current vanadium prices and the fact that the counterparties know each other a little bit better, and all that good stuff? Just philosophically, walk us through what you're seeing if you've done it already, or what you expect to see please?
Mark Smith (Largo CEO)
Well, not that we're counting Heiko, but it's actually 13.5 months away right now. And we are working towards just about every possible option that could result from the termination of that contract or a continuation of that contract under very different terms of what we have today. So we are in the process of hiring a sales team who could take over for Glencore, very experienced people that we're interviewing and looking at bringing on board. The timing for that is borderline perfect right now, because a lot of the conferences and whatnot where contracts for 2020 will be signed really start in the end of the third quarter beginning of the fourth quarter of 2019. So, we'll be in a very good position to do that.In the meantime, we're entertaining offers from multiple other parties who would like to step into Glencore shoes. All of the contracts that they are suggesting or proposals that they're suggesting are well within what I would call market norms for terms and conditions. And as you might suspect, we are also continuing our discussions with Glencore at their request, because they would very much like to continue this contract. So all options are on the table. We're going to work that out so that we get the best arrangement possible for our shareholders. And Ernest, why don’t I hand it over to you to talk about some of our expectations in terms of top and bottom line once the current contract is terminated?
Ernest Cleave Largo CFO
So some of the things to think about. With Largo from Q4 onward respectively being at 1,000 tons per month run rate, so 12,000 tons per annum that translates into just over 26.5 million pounds per annum. And the way to think about the increments is the incremental gain, dollar gain per pound. So on 26.5 million pounds, we're anticipating to gain at today's prices approximately $3.75, which is in the range of $100 million that flows down to the EBITDA line. After tax you're looking at about $85 million. So how do we get there, the $0.75 is effectively the gain that we get from the difference between the commissions we currently play Glencore and the cost of actually engaging in our own logistics and marketing costs.And then the other $3, the upside that we would gain both from selling ourselves without being under the strictures of Glencore plus being able to avail ourselves much more of the high purity market. So we see it somewhere in that range $100 million on EBITDA line, call it $85 million after taxes, so very significant. And we think it's a very important next step in the company's progress and maturity. So hope that gives you some sense of what it means.
Switzerland-based Glencore, which also trades commodities, noted that it was well-positioned to support the transition to a lower-carbon economy with a diverse portfolio that includes copper, cobalt, nickel, vanadium and zinc.
