I have been debating as to whether I post, or whether I do not....

I have been debating as to whether I post, or whether I do not. I note that generally the mood of the forum has been very positive lately and I hope that I have earned the right to post here without being labeled a down ramper. I know we just got another 40m in the kitty which is good, but the reasons behind the raise I do not see as positive. Bare with me and I will explain why:

I was surprised by the CR this week. I believed SB in his latest interviews that we were not going to conduct a CR until towards the middle of the year, and even the last quarterly supported this position, so like you, I started to ask why they might have done it. I have come to a couple of conclusions:

We have not seen the gold RAB results yet: My experience with CXO is that if they do not release results in a timely fashion, it means that the results are not good. The first example of this that comes to mind was the delay of the DFS from last year. It literally took months to get an update as to where the release was and we finally got the bad news months past the due by date. The RAB drilling was completed late last year, and I think if it was overwhelmingly positive, we would have seen the results by now. This suggests to me that perhaps the results were not good, and precedent would state that this is why we haven't heard - this is speculation, for all I know it could come next week, but I would have thought we should have seen it by now.

Reason 1: Management cashed in on the potentially higher SP before the market figured out that the results are late.

The major surprise for me was the size of the exploration budget in the CR this week. It will literally be the biggest budget for exploration that we have ever had. I had a look back at the last set of financials that CXO released on 30 June 2020. In the bowels of that release, it went through the financials to date for the underground components of Carlton and BP33. It was the first time that BP33 and Carlton had been proposed for underground mining and Grants would remain as open cut. In that release it showed that Carlton was uneconomical to mine at an exchange rate of 0.7 (it was -3.6m) and BP33 would have an NPV(08) of 67.3m at the same exchange rate. The exchange rate right now is much higher than that meaning that as an underground proposition BP33 is less attractive than the modelling and we can write Carlton off. They have been drilling over the last few months of last year, but on a shoe string budget, so they would have had to have developed a massive resource upgrade in that program to offset the LoM lost through Carlton. I have an NPV including Carlton of 232m, but losing it and accounting for an increase exchange rate likely reduces this to below 200m (my opinion only). The capex for the open cut mine has been highlighted as being 85m, and then in the same release, it highlights the capex for BP33 underground is 45m.


The cost per tonne has been sold as being $300USD but this only applies to the open cut Grants/part of BP33 component and in the release of 30 June 2020, it states that the cost of production for BP33 is A$600 ($456 USD) and Carlton was A$722 ($548 USD), so if the DFS is to represent any underground component, then it will have to factor in the likely higher costs associated with the underground mining method. Please note that the DFS must only include reserves.


Reason 2: We don't have the resources that we thought we would, so they raised while the price was high to get the cash in the bank to give them time (and money) to find it. This says to me that the DFS will likely be delayed and that this dry season there will be one hell of a drilling campaign to firm up the resources required. This could potentially slow down the construction schedule (because it is linked to finance), but it will depend on the turn around of assays. One strong advantage for CXO is that there is no shortage of targets.

One extra point:

Where the hell did hydroxide come from? this is the first time they have mentioned it, and I can only assume that they have seen the interest in PLL and decided "lets do that" - lacks imagination!. I would have preferred that they angled this CR at mining - they could have done this without a DFS based on the current environment as they can clearly get the cash, but waiting on the DFS means it needs to be good enough to get finance which could mean delays trying to get the resource to the right level. Once we are mining then they can throw all sorts of money at exploration and then we could look at hydroxide once we have a profitable operation. Building a hydroxide plant will be very expensive, and not to mention potential upgrades to the port that would be required (given the port is owned by China would they agree to modifications if the product was going elsewhere? who knows - I don't know the contractual arrangements so it could be nothing, or it could be something) - so why look into it when we can't (or shouldn't) afford it. It seems like a waste of funds at the moment - perhaps they threw that in because they knew that investors were looking for it aka PLL.

Ok, so I have some reservations about the announcement this week and where it came from but I thought I would post them so you can all continue to DYOR and decide for yourselves. I have always been a believer in sharing knowledge, all this does not mean I am right, but I have sold a bit lately because I learned a while back that I need to back my own convictions - you will need to decide for yourself - fortune favours the brave. It has been true for me investing a massive part of my life savings sub 5c and enjoying the ride up.

The positive is that CXO is now very well funded and if they embark on a massive drilling campaign then results should flow fairly regularly throughout the middle of the year and with approx 15m in exploration, we can look far and wide and may uncover a gem of a resource not currently expected. We know that we have a high quality resource, we just need more of it I think. The saying is that "Cash is King" and I also learned a while back that a company with cash in the bank always has options. I sold out of one a few years back that I thought had no hope (and didn't trust management), they had 15m in the bank for an explorer and they found a gold resource in the middle of nowhere and got bought out - the SP over doubled.

If you are in long term from now, I think that the investment is worth the risk as the potential is huge (my opinion only), but my read is that there might be some delays - this will be nothing new for current LTH's however and is a hallmark of the exploration and resource development game (it is nowhere near as easy as it reads or sounds). My major concern is that timelines may slip and I think the economy (and share markets) cannot continue on their merry (highly accelerated) way forever. The longer the timeframe drags out, the greater the exposure to something happening from left field that starts a correction/crash - I don't see anything yet, but then I never saw COVID coming either, so be vigilant and don't invest more than you can afford to lose.

I enjoy this forum and I have an emotional attachment to CXO. I still have about 1.3m shares in it and am just trying to work out what is the right level to sit and ride it out. I have had the fortunate (and unfortunate) position of looking at the value of my portfolio and what it would do for my life and trying to find the balance between hold and sell. I did not come from money and CXO has changed my life forever.....

As I said at the outset, I am not trying to down ramp but the strength of the forum is to share knowledge - the good, the bad and the ugly so that we all can make up our own minds.

Genuinely and sincerely, GLTA.