Happy Easter everyone. There will no doubt still be doubters that can't see this change in cost structure coming. One of them recently stated "
as for CXO its Bleak at best with no return to mining anytime soon {if ever }". This post explores this further in the context of the DFS.The earlier post showed the physicals as to why it would occur. The mine pictures show the creation of a large pit with the upper portions all removed. Its second hand information, but it appears a very reliable insider in Core advised the waste rock removal is nearly complete. Core's pause could be right at that transition point to "Phase 3". The original plan for phase 3 was that this ore had a cheap cash cost, but its total cost was still higher as the stripping asset was progressively expensed. With Core doing a write-off of the stripping asset, the legacy costs of creating this situation no longer require expensing. This cheap to extract ore now doesn't have an overhang of costs to add so its super low cost on both a cash and P&L view.
Part of Phase 3 is presented but not commented on in the DFS. I've circled it here in green. That part of the plan involved mining 760k bcm of waste to recover 290k bcm of ore (787kt of ore). This ore is also high grade with an average expected grade of 1.45%. The strip ratio for that last 787kt of ore was estimated at 2.6:1 (about half the strip ratio that PLS runs at). At the speed the DMS is using ore, its over a year's supply of now very cheap ore.
So in short, a mining plan involved a huge amount of expensive waste removal at the start and Core was under capitalised for the working capital cost this involved. After spending all that money at high cost and raising working capital, shareholders get the reward at the end with some very cheap to mine ore. In the September 2023 quarter Lucas mined just under 2.0M bcm of waste (as per the conference call, Core didn't write that down in the presentations). At that mining capacity, this last "year" of Grants in the DFS would have taken Lucas under 2 months to complete. If they were to continue mining at historical speeds - where was all the ore going to be put?
Doing nothing would implement that last "year" of the DFS across 2 months. Either a massive demobilisation would need to proceed it, or a massive ROM build would occur. The last Core would want to do is commence this rapid ROM build phase with 289kt of ROM. The pause in mining Core has undertaken allows the ROM to reduce before this influx. I suspect Core is still choosing between blitzing phase 3 and having a massive ROM pile or mining at slow speeds that take out the ore from phase 3 at the speed the DMS needs it. Blitz creates an absolutely massive ROM pile. DMS speed mining may struggle to have efficient unit rates. Much of the $10m payment to Lucas was clearing legacy costs or costs that would soon be payable.
So how does this mining cost to ROM cost compare to in the past?As at the June 2023 AR, the open pit ore reserve was 2.0Mt. Looking at the ROM build and ore used by the DFS, the July-December period extracted about 0.6Mt from Grants so about 1.4Mt remains to be mined (Some of the later part of year 2 in the DFS is also phase 3 ore). The HY mining cost was $68.9m. The cost of ROM was about $115/t.
From the DFS green circled last year of Grants, if the density of pegmatite and waste rock was the same at 2.71x, there's 2.85mt of material to move. At a guess of A$6/t to complete that work, $17.1m needs to be spent to recover 787kt of ore. The cost of ROM in that period is about $22/t. That 81% cheaper ore for the DMS. This massively changes Core's cost structure. That reduction in the remaining costs for this slice of ore means it will be mined. Even if Core had to pay very high short-term mining contract rates to complete this piece of mining. It would take some new and bizarre event before it was not sensible to restart mining. The board has not yet made the restart decision so "If" statements are still being made.
