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14.0¢ core lithium ltd

As always, great analysis and content!Now, we have 1. $100m cash...

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mirage2002

277 Posts.

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07/04/24

21:03

Post #: 73229617
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Originally posted by WhatsTheTip: ↑

The stripping asset - Some thoughts on thisGiven the shape of Grants pegmatite, there was probably no cost efficient way of mining Grants that would produce even remotely stable C1 costs across quarters.

Within the financial accounts there was a way of spreading costs across periods and Core created a stripping asset to do this. While the ultimate execution of the stripping asset didn't work as cleanly as expected, conceptually it was very simple. Take high early phase costs and remove them to the balance sheet. Bring them back in the lower cost late stages and costs are even across the life of the deposit. The more skewed the mining plan is, the larger the stripping asset will get before it starts to decline. By the end of the mine, the stripping asset is back down to zero. Core has a very skewed mining with lot of cost and not much ore in the early stages. The late stages should be low cost, but Core hasn't delivered those periods yet and for some bizarre reason is producing no commentary on this upcoming low cost phase.

The table below outlines the sort of overall situation that I think may exist at Core for the Grants deposit and what it would look like with a $103m stripping asset (rather than the $0 stripping asset that Core actually reported). On this variant, the total cost per ton to ROM drops from $236.5/t (super expensive) to $22.9/t (super cheap). The overall average at $97/t is higher than the DFS but still consistent with circa A$1,000 or below concentrate. If Core still had a $103m stripping asset, then there would be a clearer view of Core's costs because the average cost per ton of ROM would be equal to the life of mine average.

What Core actually did
If the stripping asset were to work so that the net cost of ROM was about $97/t each period, Core would have been adding to not depreciating the stripping asset in the most recent HY report. Core had Mining costs of $68.9m and shifted about 600kt of ore ($115/t). Instead of a net increase Core had a huge decrease in the stripping asset. Core had a stripping asset that started 1 July 2023 at $83.2m. Core added $2.5m and depreciated $25.95m before writing the balance down to zero. The depreciation charge applied appears to be based on ore recovered (not equalising costs).

If Core had 2.01Mt of ore in Grants at 30 June 2023 and extracted 0.61Mt they would have recovered 30.3% of the remaining ore from June 2023 (and 1.40Mt would remain). Core had a $85.7m stripping asset (before depreciation) at 31 Dec 2023 and depreciated $25.95m. Depreciation was 30.3% of the total.
The alignment between these two 30.3% figures indicates that Core continues to think there is about 1.4Mt of ore to recover from Grants and that the depreciation basis for the now zero stripping asset was ore recovered not equalising costs. Allocating on ore recovered partly defeated the intention of creating equal costs between periods. Possibly the change of CFO impacted plans.
Core's costs to date
Across Capex and operational mining costs, Core appears to have incurred costs of about $175m direct mining costs. This bit is spread across multiple areas of the 2023 Annual report and 2024 HY. Core haven't made it easy to unpack:
Note14(2023AR) shows $0.500m of Mining costs in CoGS for the year to June 2022
Note14(2023AR) shows $66.429m of Mining costs in CoGS for the year to June 2023
Note 3(2024HY) shows $68.908m of Mining costs in CoGS for the six months to December 2023
Note 7(2023AR) shows the stripping asset with an opening balance of $17.549m. Of this, $3.541m is known to be from the CoGS transfer as mining and employee costs were included. The remaining $14.008m would appear to be startup capitalised mining costs
Note 7(2023AR) shows the stripping asset increased by $71.670m in the year to June2023. $46.664m of this will be from the deferral of mining costs in the COGS sold calculation. There is another $25.006 that would appear to be startup capitalised mining costs.

This indicates the capex element of Grants was $14.008+$25.006=$39m and over-budget on the $33.9m estimate.
Cost of goods based mining costs are $0.5m, $66.4m and $68.9m for a total of $135.8m. $39m+$135.8m = ($136m used above).

Remaining mining costs
The last piece of the puzzle is how much mining costs remain to be incurred to complete the mining. Are Core 50% of the way through the cost of non-Capex mining the Ore/waste combo so another $136m remains and Core is genuinely very high cost in its Grants mining operation? Are Core 60%, 70% or 80% of their way through mining costs to complete the Grants project?

A shareholder group had a meeting with Doug and as a follow-up answer he advised that waste mining costs were about 85% complete. He also advised waste mining was 10.8Mt/12.2Mt complete. Its unfortunate that the reply includes a typo (the mt references are presumably bcm references). The reply indicates that by volume Core is around 88.5% complete in its waste movements with a figure if 85% quoted possibly being dollars. While close, the volume of 12.2M bcm doesn't match the DFS which had 13.1M bcm. The reason for that difference remains unclear.

The spread sheet calculations above use a rounded cost of $32m to complete Grants open pit mining. This is the last quoted bcm rate by Core of $13.79/bcm from the July 2022 ore reserves update. I've increased this by a randomly chosen 20% to $16.55/bcm. If there's 1.4Mt of ore still to be removed, at a density of 2.71x that's 0.52M bcm. From Doug's comment there's 1.4M bcm of waste plus to move for a total of about 1.92Mt. While it should be close, this figure could be out by more than 0.1Mt due to roundings and estimates. 1.92*$16.55=$31.78 (rounded up to $32m in the table above).

ImplicationsIs the remaining mining going to be $25m, $30m or $35m or something more? I'm not sure, but if its anywhere in this area, Core has ore at ROM prices around A$23/t on a forward looking basis. At say 5.5 units for SC4.8 that's a tiny mining cost of A$127/t within the cost of concentrate. Processing, general and logistics? Hard to know, but say double DFS = A$357/t. This remaining 1.4Mt from Grants could be around A$500/t for SC4.8 (due to all the previous write-off's). That's profitable at all the likely spod prices.

Which loops back to why exactly has Core paused mining?
Has Core really just temporarily paused mining to create a large write-off (So the full stripping cost doesn't need to be expensed) and to create a gap between an "old" Core with high costs and the "new" core with low costs?

If there's an error in the many calculations above, where is it and what is it?

Expand

As always, great analysis and content!

Now, we have

1. $100m cash plus 289kt ROM (52500t SC4.8)
For these 52500t, assuming $1000 Cash profit per ton $1000=$1350-$350 (Mining cost for these already paid, so cost of processing $350, SC6 is $1100USD = $1666AUD, So SC4.8 is $1350AUD) Then total of these give us $150m cash

2. Assuming restarting mining on July, for 85000t SC4.8 per year and average achieved price for SC4.8 at $1600AUD, cost $500 as WTT said,
Then, for the next 3 financial year, CXO will have $95m operating cash inflow each year.

3. Other assets, mining plants, approvals.

And market cap now is only $330m.

You know what to do with this crazy undervalue.
CXO Price at posting: 15.5¢ Sentiment: Buy Disclosure: Held
24 Upvote

6 Great analysis

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