I am happy to have a go of explaining IMHO. I am not in anyway finding excuses for GS, etc, just from my reading of their early December guidance note (one that rated Core @ $1), read it 3 weeks ago, so going on memory (see no need to re-read).
Firstly, agree with HarryM re info to justify their shorting intentions, their end game, and hopefully just answering your question re the means.
From my reading of the guidance note, main takeaways:
- Was a comparison of Li companies, so even before one bit of effort goes in, the conclusion will have a high likelihood of 1 BUY, 3-4 HOLD, 1 SELL. Is just the normal way of comparisons and in this market the players (bankers, stockbrokers, etc) need movement (up or down) to make money. A retail shareholder may be happy to see 0.5% price growth day in day out, not the players.
- The comparing companies were AKE, PLS, MIN / IGO (and / or, am unsure), LTR and CXO. Gee, like been thrown into the lion's den.
- CXO specific. The GS note did recognise revenue in the FY23e, think some $.3B (from memory, but number not important here). So if revenue, then offtake agreements are in play. If I take a random date of 1/5/2023 as the start date then; for 300,000t @ 75,000t/annum, gives 4 years, so an ending date of 1/5/2027. A simple maths equation that a 10 year old should be able to work out. So why does GS work off contracts going through to FYending2028? Why another 15 months of OTA @ contract prices? Have I miss read the company announcements re OTA? Or ..... (will discuss later).
So for me, just another blatant err.. , um..., mistake..., oh well only human? ROFL. Like Macca's bank analyst saying, DSO this financial year but NO revenue. ROFL.
- Spod prices, macro. GS predict a major supply influx vs demand fall off , about 1/1/2024, as their prices predictions "fall off the cliff". LiCO3 & LiOH @ $12,000-15,000/t ish and Spod @ $800/t. Where is the supply coming from?, of course those 6 mines of lepidolite from Africa/China. They are there, just in various stages of development, all coming on-line this year? Doubtful. Is the supply vs demand discussion? (not wanting to get into it here).
Question to GS? If the cost curve for these sources is $15,000-20,000/t then selling at $12,000-15,000/t means? Maybe the CCP (Chinese Communist Party) is becoming a charity for the sake of humanity and will instruct the Chinese converters to cop the losses on the chin... ROFL.
So based on GS price of $800/t during 2024, the potential revenue earnings from CXO are severely clipped (low or down). Yes same for other companies, however, their outputs are much higher so still retain relatively higher revenues (in comparison to CXO and in the lion's den). The CXO revenues through 2028 are very low, because GS still have them bound to their contract pricing model and not say spot prices (which they have as much higher).
- Another metric GS use is CAGR (compound average growth rate or ability to grow), fair enough. But CXO is severely restricted in this metric due to GS's assumption of contract prices thro' to FY2028 and relatively low volumes of average 160kt/a of Spod.
The other companies all have public documented growth strategies (PLS with P680 and P1000, sulphates, JV with POSCO in LiOH, & even LTR with online in 2024, upgrade in 2026, and LiOH by 2029ish, etc..).
For CXO, (and again not defending GS) the public info is something along the lines of:
- 2021 AGM says Scoping Study for LiOH by EOY, nothing heard thro' 2022, the 2022 AGM nothing specific other than examining growth of Spod, and considering LiOH, etc. Now I know that from meeting question by EV_100 (I think, if not apols to whoever reported) GM responding along the lines of doing conversion testing, bla,bla..
For me, this would signal Scoping Study is in, and a recommendation would/could be - Need to test Finniss Spod is technical/chemistry suitable as battery grade source,etc.. And the 2022 AGM presso had a bonus shares for key personnel for a - pilot plant up and running and X amount of LiOH can be produced, bla,bla, by 30 December 2023 (the carrot).
So things are progressing, but, for Joe Public? may be still waiting for Scoping Study results? No real indication of any upgrade of production, or a simple long term strategy of ?? Nothing that could reasonably put into a CAGR scenario. So Core may be seen as a 12 year mine life producer.
So on the CAGR metric, Core did not do well.
( I fully understand Core's desire to get the DMS up and running for the peak of Spod prices and support it, however, maybe the downside is that the medium to long term strategy has been compromised (if say comparing to LTR with their long term strategy out in the public domain). Is something Core just needs to work on and communicate to shareholders. I can accept its just a plan, and may for many reasons may not eventuate, but a plan is better than no plan. I feel in that bit of a vacuum of knowing what is next?)
- Another metric was NTM EV/EBITDA / NPV ... (NTM = next twelve months). So again with Core just getting production going by say March 2023, then only 8 months of the NTM is $ contribution, does not compare well with the likes of PLS, AKE, MIN, etc,, LTR? have a strong NPV so..???.
I have nothing to compare with GS's EBITDA modelling, have financial model but is my own 'bastardised one', as I include CapEX, the $80+M deferred tax losses, my OTA pricing guesstimates, etc so difficult to make any comment re GS.
- Are others, but feel enough here. Its BS!!.
So concluding, can not really see Core "fairing well" in GS's note, but hey, it may be "it is what it is", the means to the end.. Let's short Core and make money.
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