"Can they really survive to produce lower grade spodumeneat very cash operating unit cost and how long it will last ?"The short answer IMO is yes Core can survive but I think management are looking for more than just surviving. What Core can't do, and I suspect won't keep on doing is spending $1,889/t relative to quarterly output. Three key reasons impacting why high costs won't remain for an extended period are below.
Reason 1 - ROM BuildupAs previously explained (a few pages back in HC), this $1,889/t figure you quote involved a substantial ROM buildup. The ROM at the end of June was 7,598t and the ROM was increased to 164,798t in the Sept Quarter. The quarter therefore involved mining 157kt more ore than was processed. If Core were to continue spending A$1,889/t then they would be producing at a rate that keeps the ROM pad growing rapidly. The table below looks at how many Kt the ROM pad would be if Core continued to build it at 157kt quarterly increases (ignoring that the wet season may prevent this).
Unless Core had a change of strategy of to quickly completely mine out Grants with a huge ROM pad that is then run down for over a year, Core needs to either substantially slow down ore mining (during the wet) or choose to pause mining operations for a few wet months (If the wet season is problematic they may be made to stop increasing the ROM size). While it was sensible if not necessary to build up the ROM in advance of the wet season, it is not sustainable for Core to be mining ore at over 300kt/qtr while running a DMS plant using under 200kt/qtr.
The statement of a "possible temporary curtailment of mining operations" is one of the two options that was going to be required anyway. The other one was a substantial slow-down in mining activities. While it can be read as a drastic action, it may also simply be a sensible response to more difficult mining conditions given the ROM size allows this option to be taken.
Reason 2 - Mine stagesOpen pit mines with overburden to remove typically have different phases. The first phase involves lots of overburden removal and limited if any production. The second is steady-state where overburden removal is closely matched to the ore required for production. The third end of life stage involves low incremental cash costs because the overburden costs to reach the ore have already been spent. Part of the reason why A$1,889/t is high is because Core is still in this first phase where overburden costs are higher than the Grants expected mine average. It shouldn't be long before Core transitions for a short period to the BAU middle stage which will involve both sets of C1 costs aligning. This BAU phase will probably be fairly short for Core.
Core had a A$83.2m Stripping Activity Asset at 30 June 2023 (Stripping costs taken to the balance sheet to better match costs and revenue). This has probably increased since then to something over A$100m. These costs will soon need to start being expensed. If the A$904/t calculation is a good estimate of unit costs, Core will soon need to transition past BAU to a phase where cash costs paid in the quarter are well below the unit average. If Core were to expense $100m of costs across say the last 250kt of Grants production, they would need to expense $400/t of SC production. If the cost remains around A$904/t then this later 2024 / 2025 cash cost of production (excluding already paid stripping costs) is going to be seriously low.
The DFS gives some idea of likely costs excluding mining costs, Core then estimated processing, haulage, logistics and site costs at US$125/t. Inflation and less efficiency than expected may have increased those to perhaps A$250 to A$300/t. Core would also need to pay for the cost to get to the ROM and any residual overburden removal. Some attributes of the 22 Dec announcement do look like a precursor to writing down the stripping asset in the half year report. If this were to occur, the half year result would look very ordinary (if not a loss), but Core would then start reporting seriously low ongoing cash costs.
Reason 3 - Grants is a small resourceAt the end of June 2023, Grants estimated ore Reserve was estimated at 2.0Mt. Just over 300kt of that was removed in the September quarter. If Core were to stop other activities and aggressively focus on mining Grants till it was empty, at around 310kt/qtr the mine-out of Grants would take just over 6 quarters (from June). If Core's costs were $50m/qtr, selling 20-25kt per quarter at AUD1,000/t-AUD1,500/t would give $20-$38m. Using a low end, net costs would be $30m/qtr. Dec23 to Dec24 inclusive quarters would use $150m cash and basically around Jan/Feb2025 all of Grants ore would be mined out of the ground and on the ROM. This is basically the assumption being used when people quote maintaining $1,889/t and that there was no ceasing of overburden removal costs!!
On this hypothetical scenario the trigger point for stopping a keep on building the ROM pad plan would be running out of ore, not running out of Money!!
[Note I'm using 310kt because 153kt * (1.45/5.2%) * 50% = 20.7kt. 153+157=310].
(20min delay)
