Hi all. My first stock write-up. Sorry it got...long.
Core Lithium Ltd (ASX: CXO) 4.9c
CXO are primarily focused on lithium exploration & have approvals in place for the construction of their Finniss project in the NT (see pic). They also hold 100% stakes in gold/silver/uranium/copper/lead/zinc prospects.
The pros: (mostly summarised from Sept 2020 presentation)
- SPP closed early, oversubscribed in June 2020. Cash at start of FY $8.7M (could not find a more recent value).
- They are “developing one of Australia’s most capital efficient and lowest cost spodumene lithium projects” which is backed by the proximity to Darwin & access to existing infrastructure (From ANNs: “The Project lies within 25km of port, power station, gas, rail and one hour by sealed road to workforce accommodated in Darwin and importantly to Darwin Port - Australia’s nearest port to Asia”)
- Mineral Resource Estimate (MRE) at Finniss is 15Mt @ 1.3% + another 7.62Mt @ 1.41% within 3km radius of mine site.
- Currently 2x diamond drilling rigs on site for another 4000-5000m exploration. One started in September, the other arrived last week (October). “Drilling program expected to be completed in November 2020.” From the Sept 30th Ann: “Recent mine planning and resource assessment studies have highlighted valuable opportunities to further extend Mineral Resources and Ore Reserves at the Grants and BP33 deposits (NB: part of Finniss), particularly in light of efficient underground mining methods verified in the Pre-Feasibility Study (PFS). Notably, the last holes drilled at BP33 showcased an outstanding lithium intersection of 107m @ 1.70% Li2O that is open along strike in both directions and at depth. The orebody at Grants is open below the intersection of 48m @ 1.59% Li2O from 224m. Core’s mining engineering team is currently working to optimise the depth of the Grants open pit to complement an extended underground mining operation to exploit the deeper extents of the Grants orebody, which has the potential to reduce the stripping ratio and capture more of the Grants orebody.”
- 6.0 % Li 2 O conc. produced at +70% lithium recovery with low iron & other contaminants using simple Dense Media Separation (DMS); (no flotation needed = cheaper processing)
- Start-up CAPEX is estimated to be around $80M AUD, with potential revenues of $160m/y
- Offtake agreements for most of the current known resource accounted for (about 40% binding with Chinese-based Yahua and 45% MOU with Xinfeng (China) and Transamine (Geneva) – My understanding is that these will become binding agreements when mine finance is in order). Side note: Yahua own 7% of SOI, Xinfeng hold 2.2%.
Approvals & Finance:
- All government and environmental approvals in place to commence construction and operation of the Finniss Project (but I think they still have to figure out water rights? Anyone know?)
- Heads of Agreement in place with Darwin Port to ship either 250,000 tonnes per annum of spodumene concentrate or 1 Mtpa of spodumene Direct Shipping Ore.
- Last few announcements have highlighted ongoing discussions for additional offtakes and finance partners ““Core is receiving increased interest from new lithium parties and is close to completing additional binding offtake and customer project finance agreements”
- NT Government have provisionally approved CXO a $5mil low-cost business investment concessional loan. This is contingent on CXO first achieving at least 50% binding offtake agreements & getting the rest of the finance in order.
Bonus points:
- Recent activity focusing on gold exploration for value-add while the lithium drilling continues. ‘Visible gold’ at both Pickled Parrot Prospect & nearby newly discovered/named ‘Covidicus West’ in the NT – including up to 1.9g/t Au in soil samples & 106g/t in new rock chip samples. Geo mapping, pulp re-assays (of old lithium soil samples), auger-based soil sampling and rock chip sampling ongoing at Pickled Parrot, Covidicus West, “and other similar targets”
- CXO has received expressions of interest to buy their 100% Silver project in the NT. Previous drilling discovered high-grade silver, zinc and lead. Years ago (2014/2015?) they had an agreement with a Chinese company that wanted 80% of the project for $2 mil (when silver was $15/oz) but it seems like they never got FIRB approvals, so this never happened. Silver now @ $35/oz. A sale here might stave off another CR.
The cons:
- Almost 1 Billion SOI and Top 20 only hold 26.3%.
- Directors are not known to buy on market. However, they hold about 5 mil options each, exercisable at 6c…so I suppose they are holding out for conversion.
- POSSIBLY another CR (or two?) before things really start to pick up (but I think very unlikely in the next 6 months based on current cash & they are considering the sale of Silver and Gold assets – so might not eventuate at all)
- Management almost never meet their own timelines/could definitely be more conservative with cash burn (thus maybe a CR)
- Relatively small LOM; ~7 years (but they’re still drilling)
- Mine construction was widely expected to start this year based on historical anns, but management ‘decided’ to hold off until the lithium sector starts to pick up again. Probably a good thing longer term, but shareholders felt lied to/considered this another milestone missed.
- Seems like there could have been a leaky ship prior to last gold announcement… SP went up a few pips/above average volume in the days before.
Summary:
A lot of potentially good anns expected in the near-term, including:
- “Discussions with additional offtake partners nearing finalisation”
- Diamond drilling results/potential increase in LOM
- “Update to the June 2020 PFS to Definitive Feasibility Study (DFS) level in Q1 2021”, “Finniss final investment decision (FID) in 2021 timed for expected post-COVID-19 recovery in global lithium demand and prices”
- Financing arrangements “We aim to convert the Xinfeng and Transamine agreements to legally binding offtake agreements with the possibility of project finance.”
- Results of gold rock chip/auger drill soil samples with potential new targets being identified on previously unexplored land.
- Potential sales of silver and/or gold assets
I've tried to provide a thorough summary, but of course all IMO, DYOR, etc.
I’ll leave the entry point speculations to someone with more technical knowledge. For disclosure, I’m in at an average of 4.4c and am staying in for a long hold.
(20min delay)
