Banter and general comments, page-18115

It will be interesting to see how many more DSO (non-fines) auctions occur.

1. The best case is ironically no more DSO shipments - In this scenario the DMS circuit is sufficiently close to being completed that Core wants to preserve all crushed ore to build up a pre-DMS stockpile and ensure that the DMS won't run out of ore. This stockpile would mean the DMS can keep running even if weather disruptions occur interrupting hauling out of the pit, or maintenance/plant breakdowns temporarily stop the additional supply of crushed ore. Someone like @BPLithium would be well placed to suggest the optimal size of this pre-DMS stock pile. In this scenario you don't get extra DSO (non-fines) auctions because you get Spod sales / auctions and the BMX has shown what prices those can get.

2. Mid case - The crusher gets ahead of the DMS's processing plus stockpile needs and the extra is DSO shipped. While this extra ore is sold at less than Spod prices there isn't a near-term spod sale option. The DMS has enough ore to keep it fully supplied and an acceptable price is received from DSO. This extra would effectively not have been processed until additional DMS capacity is brought online which is some time away as the FID for this hasn't happened yet. Its therefore DSO pricing now vs some guess at Spod prices at a point in the future when surplus DMS capacity exists.

3. Downside - If the crushing is commissioned properly but DSO commissioning issues occur preventing any near-term Spod shipments. Given Core have dug the Grants pit to the depth required and have at least partly commissioned crushing enabling DSO shipments, a DMS issue is the most likely problem. If DSO commissioning issues occur there's lots of extra crushed ore that I presume Core would DSO ship. Given this is the down-side, let's explore it more (spoiler it's not Macquarie's forecast). Crushing was modelled in the July 2021 DFS to be 1,080,000 in FY23, 1,090,000 in FY24 and 1,100,000 in FY25 & FY26. The crushing capacity being installed should therefore be around 1.1MT/yr. The fines business case noted 110kt pa of fines so around 10% of the crushed volume is expected to be fines while 90% is DSO ore which is planned to go through the DMS concentration processes.

I assume Crushing services (Mineral Resources) know what they are doing and successfully commission crushed ore to nameplate. Core will be producing around 970kt of crushed ore per year (1080 less 110 in fines). This is about 18.7kt/week. On 25 May 2021 Core agreed a Port Operating Agreement (POA) which confirmed Panamax size capacity (65-80kt). The 2 June 2021 presentation slides confirm this agreement allows up to 1Mtpa of DSO shipping. Core therefore has the port approvals to DSO ship 970kt per year using Panamax ships.

The down-side DMS commissioning delay option would therefore be to keep on running crushing at full capacity and fill a Panamax ship around every 3.5 to 4 weeks. This would generate about US$800m in revenue per year (US$951*65,000*(52/4)=US$803m). That's less than would occur by multiplying current spod rates by projected production volumes, but it's an extremely good down-side scenario if there are significant DMS commissioning issues preventing the sale of Spod. I'm not sure that the market realizes quite how good the down-side scenario is!!